South Korea economic growth slows on supply snags, Covid-19 curbs

Gross domestic product gained 0.3 per cent in the July-September period, decelerating from 0.8 per cent in the second quarter. PHOTO: EPA-EFE

SEOUL (BLOOMBERG) - South Korea's economic expansion cooled last quarter as global supply chain snags dragged down investment and a renewed virus outbreak weighed on household spending.

Gross domestic product gained 0.3 per cent in the July-September period, decelerating from 0.8 per cent in the second quarter and just half the 0.6 per cent predicted by economists, data from the Bank of Korea (BOK) showed on Tuesday (Oct 26). The economy expanded 4 per cent from a year earlier.

The result complicates the BOK's plans for another interest-rate increase this year, after it began a tightening cycle in August. The central bank may choose to look through the slowdown after saying earlier this week that it expects rising vaccinations and lighter restrictions to give the economy renewed impetus.

Governor Lee Ju-yeol has said the BOK will consider another hike in November in the event the recovery proceeds as expected, having projected a 4 per cent expansion for 2021.

Growth had been expected to ease in the third quarter as daily infections surged above 1,000 from July and authorities imposed a semi-lockdown in Seoul and other major cities. In an online seminar on Monday, the BOK said it expected a transition to "living with Covid" to support consumption for the remainder of this year and into 2022.

Exports have remained buoyant, aided by resilient global demand. Still, factory shutdowns in South-east Asia have created challenges in securing key manufacturing components, particularly for Korea's automakers.

Looking at GDP by component, private consumption fell 0.3 per cent last quarter from the April-June period. Government spending was up 1.1 per cent. Exports, as measured on a real basis, increased 1.5 per cent, while facilities investment fell 2.3 per cent.

In terms of contributions to growth, investment was the biggest drag, shaving 0.6 percentage point off the quarterly expansion as rising raw material costs and difficulties in securing auto-manufacturing chips hurt construction and facilities investment. Private spending cut 0.1 percentage point. Net exports added 0.8 percentage point.

On Monday, the BOK also flagged risks to the economy from China's energy crunch and property market woes. It estimated that a 1 percentage point slowdown in China reduced Korea's growth rate by 0.1 to 0.2 percentage point.

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