Korea’s economic growth slows in third quarter on weak exports

South Korea’s economy grew 0.1 percent in the third quarter from the previous quarter, much lower than expected due to an unexpected slowdown in exports, preliminary data from the Bank of Korea showed Thursday.

The country’s real gross domestic product — a key measure of economic growth — rose 0.1% quarter-on-quarter in the July-September period, missing the 0.5% increase forecast by the central bank in August.

It’s a wake-up call for Asia’s fourth-largest economy to meet its 2.4 percent growth target this year, amid growing uncertainties surrounding the global semiconductor market, the the country’s main export product.

“To achieve the 2.4 percent growth forecast in August, mathematically, the economy needs to grow 1.2 percent in the fourth quarter,” said Shin Seung-chul, director general of the BOK’s economic statistics division.

“We will have to monitor the situation closely until the economic report is published next month, but it is very likely that it (the annual GDP growth target) will be adjusted.”

On an annual basis, the country’s economy grew by 1.5 percent in the second quarter, compared to 2.3 percent and 3.3 percent in the second and first quarters of the year.

Korea’s GDP growth rate declined by 0.5% in the fourth quarter of 2022, the first contraction in two years and six months. After recording a surprising growth of 1.3 percent in the first quarter of this year, it declined by 0.2 percent in the second quarter.

The weak growth in the quarter ended September was mainly due to exports returning to contraction after growing at a better-than-expected pace in the first six months of this year.

Overseas shipments fell 0.4% in the quarter, mainly in the auto sector, following a strike at GM Korea. The slowdown in chemical exports also weighed on this overall figure.

The BOK blamed the contraction on slowing export dynamics of information technology products and sluggishness in non-IT products such as chemicals.

“Although export growth turned negative in the third quarter, we interpreted it as a slowdown or adjustment period rather than a sign of a serious export crisis,” Shin said. “It is too early to judge that the export economy has turned into recession. »

Imports increased by 1.5 percent, driven by increased imports of machinery and equipment.

On the spending side, private consumption increased by 0.5 percent thanks to increased spending on motor vehicles, communications equipment, health care and transportation services.

Consumption increased by 0.6 percent while investment in construction decreased by 2.8 percent.

Despite the base effect of the second quarter which made the latest figures appear strong, the BOK estimated that domestic consumption is on the path to recovery.

Economic organizations at home and abroad have projected Korea’s annual growth rate for this year at around 2 percent.

The International Monetary Fund kept its latest forecast at 2.5 percent. The Organization for Economic Co-operation and Development put it at 2.5 percent, 0.1 percentage point lower than in July. The Korea Development Institute predicts it will be 2.5 percent.

The weak third-quarter performance casts further uncertainty over the economy, with financial authorities closely monitoring the potential effect of November’s U.S. presidential election and China’s economic slowdown. Republican presidential candidate Donald Trump’s widespread tariff policy is putting pressure on Korean companies’ investment in facilities.

It is also unclear how long rising global demand for semiconductors, which has boosted the Korean economy, will maintain its upward trend.

“There have been big changes in internal and external economic conditions. The recovery of global manufacturing has been slowed while China’s economy is showing signs of weakening with a focus on domestic consumption,” said Shin.