SEOUL (REUTERS) - South Korea's economic growth slowed more than expected in the third quarter, and though exports showed some signs of recovery the overall outlook was clouded by a domestic spending slump and intensifying global trade frictions.
The trade-reliant economy has been among those worst-hit by cooling global demand as a prolonged US-China tariff war disrupted world supply chains in a blow to business confidence and investment. A months-long trade spat with Japan has also added to strains on Korean exporters.
The Bank of Korea's advance estimates showed on Thursday (Oct 24) that the economy grew 0.4 per cent during the July-September period on-quarter, down from a 1.0 per cent rise in the second quarter and just missing a 0.5 per cent gain forecast in a Reuters survey of 26 economists.
Exports rose 4.1 per cent in the third quarter after a 2.0 per cent gain in the second quarter, which reversed a successive run of contractions for two quarters. But private consumption grew just 0.1 per cent and construction spending tumbled 5.2 per cent.
Economists said exports, the most important driver of growth for Asia's fourth-largest economy, appeared to have clearly passed the trough, although a sure-footed recovery in the economy would require more policy support.
"Today's data means this year's growth will be 1.7 per cent or 1.8 per cent at most, but the economy is probably at or past the bottom as the global IT cycle is showing signs of recovery," said Yoon Ji-ho, chief strategist at eBest Investment and Securities.
The exports recovery in the GDP data, which are volume-based, contrasts with the still poor monthly shipments in US dollar value, although the two sets of data tend to converge over time.
Over a year earlier, the economy grew 2.0 per cent, bringing the average for the January-September period at 1.9 per cent, down from a 2.6 per cent gain for the same 2018 period and compared with the central bank's 2.2 per cent growth projection for the whole of this year.
Markets reacted cautiously to the GDP report, with the won up slightly, while bond futures and stock prices edged down after the first hour of trading.
CENTRAL BANK OPEN TO MORE EASING
South Korea's GDP growth is forecast around 2 per cent for the whole of this year, the latest Reuters poll showed, well below the 2.7 per cent pace in 2018 and marking the worst in several decades excluding global or regional crisis-hit years.
The government has responded with an extra US$5 billion stimulus plan while the central bank has trimmed policy interest rate twice in three months to 1.25 per cent, matching a record low seen until late 2017.
The Bank of Korea has left the door open to further easing although another cut is not expected soon. The next policy meeting, the last of 2019, is on Nov. 29.
On Tuesday, President Moon Jae-in urged the parliament to approve the government's budget bill for next year, which proposes a 9.3 per cent increase in spending from this year, saying it was time for fiscal policy to play the leading role.
"The global economy has worsened rapidly, and our economy, heavily trade-dependent, is also in a grave situation," Moon said.
South Korea's fiscal position remains strong in comparison to its global peers, with the government debt ratio at less than 40 per cent of annual GDP versus more than 100 per cent for many of the major economies.
Opposition parties and critics have also blamed the economic slowdown on the negative effects from some of President Moon's radical policies.
Since taking office in May 2017, Moon's government has raised minimum wages by almost 30 per cent in two years, sharply cut the maximum amount of mortgage loans that home owners can borrow and reduced the legal weekly work hours.