South Korea's advance GDP growth for 2Q expanded at a slower pace than in 1Q. Amid sluggish consumption and anemic exports, 2Q GDP growth moderated to 2.2% yoy from 2.5% yoy in 1Q. GDP growth was dragged by weaker private consumption (-0.3% qoq vs +0.6% qoq) caused by the MERS fallout and severe drought. The negative impact of MERS will likely linger into 3Q. In addition, Bank of Korea's governor hinted at additional downside risks due to regional droughts.



"We expect the recently introduced fiscal stimulus plan to help offset headwinds from consumption and exports to a certain extent. That said, recovery in consumption will likely only progress at a glacial pace, if we recall the ferry tragedy and its aftermath," says BofA Merrill Lynch.



Further, the number of foreign visitors to Korea has not shown any clear signs of rebound yet. This suggests that retail sales may fail to pick up speed as fast as expected.



"We maintain our GDP forecast at 2.7% yoy, but the risk remains to the downside," added BofA Merrill Lynch.