China’s central bank surprises market by cutting key rate

South Korea’s economy unexpectedly contracted in the second quarter on cooling consumer spending despite stronger exports, increasing expectations of an interest rate cut in the coming months.

Gross domestic product in the April-June quarter shrank 0.2 per cent from a quarter earlier in seasonally adjusted terms, according to the Bank of Korea, while analysts polled by Reuters forecast a 0.1 per cent rise.

This marks the sharpest contraction in six quarters, following 1.3 per cent growth in the first quarter.

Private consumption fell 0.2 per cent and construction spending dropped 1.1 per cent, while exports rose 0.9 per cent.

Capital Economics expects domestic spending to deteriorate, prompting the Bank of Korea to cut interest rates in October, but cautioned that there was an increased chance of a rate cut in August.