South Korea's economy grows more than forecast in Q3 on property boom

An apartment complex which is currently under construction is seen in Seoul.
An apartment complex which is currently under construction is seen in Seoul. PHOTO: REUTERS

SEOUL (BLOOMBERG) - South Korea's economy grew more than forecast in the three months through Sept 30, supported by a property market boom, while exports and consumption were disappointing.

Gross domestic product expanded 0.7 per cent in the third quarter from the previous three months, when it gained 0.8 per cent. Economists' estimate was for a 0.6 per cent increase.

The economy expanded 2.7 per cent from a year earlier, according to data released on Tuesday (Oct 25) by the central bank .

The biggest contributor to growth was construction investment, which added 0.6 percentage point to expansion from previous quarter. Net exports shaved 0.6 percentage point off GDP.

Strength in the property market has supported South Korea's economy this year, while traditional growth engines like exports and consumption lost steam. There is uncertainty about how long construction-led growth can continue as the government seeks to rein in swelling household debt and with a looming oversupply in housing.

Economic growth may deteriorate in the fourth quarter as headwinds build.

An anti-corruption law is affecting spending on entertainment and food while the end of Samsung Galaxy Note production is a blow to exports. Finance Minister Yoo Il-ho has said fourth-quarter growth will show some slowing, but the government doesn't expect a contraction.

"There wasn't much good news for consumption and exports in the third quarter," Oh Suk-tae, an economist for SG Securities Co. in Seoul, said before the release. "Consumption tax cuts for automobiles ended in June. Hyundai Motor workers were on strike and Galaxy Note7 troubles emerged."

"Yet the larger problem lies in next year," Mr Oh said. "Construction investment is what has been sustaining growth, but a continuing boom would lead to a property bubble."

Ma Tieying, a Singapore-based economist for DBS Group Holdings, said before the release that "deterioration in exports should be attributed to not only weakness in external demand but also domestic factors."

Construction investment rose 3.9 per cent in third quarter from the previous three months. Private consumption increased 0.5 per cent from the second quarter, while government spending rose 1.4 per cent.

Exports expanded 0.8 per cent while infrastructure investment was down 0.1 per cent.