Concerns Over US Growth Slowdown and Inflation Are Exposed Negative Factors

"Minimal Stock Market Impact... KOSPI to Remain Strong Amid South Korea's Robust Export Figures"

On the 20th (local time), container transport trucks are lined up to enter the terminal at the Port of Los Angeles (LA) in San Pedro, California, USA.
[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The U.S. growth rate is expected to slow down, and the inflation trend is likely to continue. However, analysts say this is already a known negative factor and does not imply stagflation (economic stagnation accompanied by rising prices).

On the 23rd, KTB Investment & Securities made this analysis. Next week, the GDP growth rate results for both the U.S. and South Korea will be announced. The U.S. is expected to show sluggish performance. The annualized growth rate for the first half of this year was 6.3% in Q1 and 6.7% in Q2, but it is expected to slow significantly to 3.0% in Q3.

The expansion in consumption is interpreted as falling short of expectations due to the impact of the COVID-19 Delta variant and the fading effects of policies. Seokhyun Park, head of the investment strategy team at KTB Investment & Securities, explained, "In the first and second quarters, personal consumption contributed 7.4 and 7.9 percentage points respectively to U.S. GDP growth, having an absolute impact, but in the third quarter, the stagnation in consumer spending likely played a decisive role in lowering GDP growth."

However, this sluggishness is not expected to negatively affect the stock market. U.S. retail sales in Q3 fell by 0.7% compared to the previous quarter, marking the first quarterly contraction since the COVID-19 pandemic. But this is already a known factor and will simply be reconfirmed by the Q3 GDP results, according to the analysis.

Moreover, this decline in retail sales is seen as a temporary result following the end of unprecedented policy support. Monthly data shows that after hitting a low in July, retail sales have been on the rise. Park said, "There is little need to worry about continued weakness in consumer spending. Future changes in U.S. GDP growth forecasts will go through a process where overly optimistic expectations gradually shrink and converge around an annualized rate of about 4%."

Concerns about rising inflation are also not considered a major burden. Next week, the U.S. September Personal Consumption Expenditures (PCE) inflation rate will be announced, and it is expected to show an increase compared to the same month last year. If inflation continues to rise, the impact of rising raw material prices in Q4 could gradually spread to other areas, potentially stirring anxiety about inflation outlooks. If the year-over-year increase in the U.S. core PCE inflation rate for September exceeds the previous month's +3.6%, it would mark the highest level in 30 years since Q1 1991. This has led to concerns about stagflation.

However, this is also judged to be temporary. Since solid growth is expected to continue, concerns about stagflation, which implies recession accompanied by inflation, are considered excessive. Park said, "Inflation is expected to gradually slow down after Q4 rather than continue rising. Even if next week's economic growth rate slows sharply and inflation hits a new peak, there is little need to overreact."

Regarding the domestic economy, it is expected that South Korea can fully achieve the Bank of Korea's GDP growth target of 4.0% for this year. The export sector is expected to remain strong through the end of the year. Exports reached a monthly record high of $55.8 billion (approximately 65.621 trillion KRW) in September and are expected to continue setting new records in October. This trend is expected to continue through Q4. Park emphasized, "Although the base effect will fade and export growth rates will inevitably slow, more weight should be placed on the continued strength of monthly export figures. This will help eliminate correction risks in the stock market's KOSPI and maintain steady upward momentum."

This content was produced with the assistance of AI translation services.