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South Korea's economic growth beats estimates, backing rate pause

SEOUL :South Korea’s economy fared better than expected in the third quarter with the expansion underpinned by exports, backing the case for the central bank to keep rates on hold for the months ahead.

Gross domestic product (GDP) grew 0.6 per cent in the July-September quarter from three months earlier, data from the Bank of Korea showed on Thursday, the same pace as the prior quarter and beating a median 0.5 per cent increase forecast in a Reuters survey.

The results likely bolster the BOK’s view that it needs to maintain restrictive monetary policy for now to bring the economy in for a soft landing after a cumulative 300 basis points of interest rate hikes since August 2021.

“It’s still uncertain whether the economy will achieve 1.4 per cent annual expansion as forecast (by the BOK),” said Park Sang-hyun, chief economist at HI Investment & Securities. “The business sentiment data out today isn’t so great and the strength of exports recovery may not be that solid.”

In the third quarter, exports expanded 3.5 per cent after declining 0.9 per cent in the preceding three months, while private consumption grew 0.3 per cent after contracting 0.1 per cent in the second quarter.

A breakdown of GDP contribution showed net exports by volume boosted growth by 0.4 per centage points in the third quarter.

Government spending grew 0.1 per cent, and construction investment expanded 2.2 per cent after contracting 0.8 per cent in the second quarter.

Facility investment has been a drag, contracting 2.7 per cent on-quarter.

On an annual basis, Asia’s fourth-largest economy grew 1.4 per cent in the third quarter, after a 0.9 per cent gain in the second quarter and beating a 1.1 per cent rise expected by economists.

South Korea’s central bank held interest rates steady for a sixth straight meeting last week, retaining a tightening bias on monetary policy as it warned of inflationary risks from the Israel-Hamas conflict and global oil prices.

“We note the sluggishness in exports is gradually easing,” a BOK official said in a news conference after the data was released.

“We also expect consumption, which has been hampered by inflationary pressure, to come back but the pace of recovery will be only steady.”

In a Reuters survey conducted early this month, South Korea’s economic growth was forecast to slow to 1.2 per cent in 2023 from 2.6 per cent in 2022. That is lower than the government and the central bank’s projection for 1.4 per cent.

(Editing by Ed Davies and Sam Holmes)

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