South Korea’s economic growth slowed in the third quarter as strong exports were offset by weak domestic consumption due to the country’s toughest Covid-19 restrictions, clouding the Bank of Korea’s prospect for another rate increase this year.
Gross domestic product rose 0.3 per cent in the July-September period, decelerating from 0.8 per cent in the second quarter and missing a 0.6 per cent growth forecast in a Reuters survey.
Asia’s fourth-largest economy expanded 4 per cent from a year earlier, slowing sharply from 6 per cent growth in the second quarter, which was the fastest in a decade.
Weaker quarterly growth was widely expected as health authorities struggled to contain the country’s worst virus outbreak after daily infections surged above 1,000 from July. Exports rose 1.5 per cent in the third quarter from the previous quarter while private consumption fell 0.3 per cent.
The BoK told an online seminar on Monday that consumption was expected to pick up in the current quarter, helped by rising vaccinations and a transition to “living with Covid-19.” More than 70 per cent of the country’s 51m population has been fully vaccinated.
The bank has flagged China’s energy crunch and supply chain bottlenecks as downside risks for the Korean economy although exports remain robust. Overseas shipments jumped 36.1 per cent in the first 20 days of October from a year earlier, according to customs data.
BoK governor Lee Ju-yeol has said the central bank will consider another rate hike in November after South Korea became the first major Asian economy in August to tighten monetary policy since the pandemic hit.
The BoK is widely expected to increase its benchmark interest rate by 25 basis points to one per cent on November 25 to ease growing financial risks amid rising inflation and household debt.
“While Korea’s recovery lost some momentum last quarter as the virus weighed on growth, the economy should pick up pace again this quarter as high vaccination levels allow the rolling back of containment measures,” Alex Holmes, Asia economist at Capital Economics, said in a report. “[But] the BoK is unlikely to be deterred from tightening further by today’s data.”
