South Korea's second-quarter growth slows as capital investment slips, consumption slows

By Cynthia Kim and Hayoung Choi

SEOUL (Reuters) - A rapid fall in capital investment slowed South Korea's economic growth in the second quarter, while weaker export growth highlighted concerns over the outlook for trade in the second half of the year.

Gross domestic product grew a seasonally adjusted 0.7 percent in the second quarter, the Bank of Korea (BOK) said on Thursday, slowing from 1 percent growth over January to March, as expected. Year-on-year growth logged 2.9 percent, slightly below 3 percent growth seen in a Reuters survey.

Investment in plant and equipment dropped 6.6 percent, the worst performance since a 7.1 percent fall in the first quarter of 2016 when large scale investment in manufacturing capacity to produce memory chips and display panels petered out.

"Investment on machines for production of memory chips and display panels is declining. Private consumption also took a hit from a downturn in activity by non-government organizations because the Winter Olympics in PyeongChang are over," a central bank official said.

Private consumption gained 0.3 percent, logging the slowest growth in six quarters, while construction investment declined 1.3 percent after gaining 1.8 percent a quarter earlier.

Pyeongchang, a mountain county in South Korea's Gangwon province, hosted the 2018 Winter Olympics in February this year, which fed a boom in consumption and tourism.

Exports, which account for about 43 percent of GDP, grew 0.8 percent in the second quarter after jumping 4.4 percent in the first.

Park Sang-hyun, an economist at Leading Investment & Securities, said global trade conflicts could undermine South Korea's exports in the second half.

"Problem is, the hostilities between the U.S. and China will affect South Korean exports," Park said.

Second quarter exports added 1.3 percentage points to quarterly growth in the second quarter, while a fall in the broader domestic consumption category subtracted 0.6 percentage points, resulting in a quarterly expansion of 0.7 percent for the April-June period.

(Reporting by Hayoung Choi; Editing by Eric Meijer)