Economy barely grows in Q3, signaling challenges ahead

Audio report: written by reporters, read by AI

Korea's economic growth came nearly flat in the third quarter following weak exports, casting a shadow over the country’s outlook for the remainder of the year.

The central bank is likely to revise its annual growth projection further downward, having lowered it by 0.1 percentage point to 2.4 percent in August.

The country's real GDP edged up 0.1 percent during the July-September period from the previous quarter, the Bank of Korea (BOK) estimated Thursday, falling well below the central bank's earlier expectation of 0.5 percent.

The increase followed a 0.2 percent contraction in the second quarter, which was the first quarterly decline since the fourth quarter of 2022.

Real GDP expanded by 1.5 percent compared to the same period a year earlier.

Korea's sluggish exports weighed heavily on its growth during the period.

Net exports were responsible for a 0.8 percentage point drop in growth in the third quarter; a rebound in domestic demand just barely overcame the slump, contributing a 0.9 percentage point increase.

“While domestic demand recovered as anticipated, growth in exports slowed more sharply than expected, leading to only marginal growth from the previous quarter,” Shin Seung-chul, director-general of the BOK’s economic statistics division, said during a press briefing Thursday.

Exports, especially in the chemical and automotive segments, saw a 0.4 percent decline from the third quarter, while imports grew 1.5 percent.

On the other hand, a steep 6.9 percent increase in facility investments drove the third quarter's growth, accounting for a 0.6 percentage point advance. Construction investments, however, continued to weigh on growth, shrinking 2.8 percent from the previous quarter.

Private consumption rose 0.5 percent on quarter, and government consumption grew 0.6 percent.

Korea, having logged slow growth for two consecutive quarters, is likely to miss its growth projection for this year, the BOK warned.

“In order for annual economic growth to come to 2.4 percent, quarterly growth in the fourth quarter should come to at least 1.2 percent,” said Shin, characterizing such an outcome as “arithmetically difficult” given the third quarter's results.

The central bank previously estimated that Korea's economy would grow 0.6 percent in the fourth quarter of this year.

The bank will announce its updated growth projection on Nov. 28. It revised its 2024 projection from the previous 2.5 percent to 2.4 percent in August, its second revision this year after it raised its forecast by 0.4 percentage points from 2.1 percent in May.

The Ministry of Economy and Finance previously predicted 2.6 percent growth this year.

Finance Minister Choi Sang-mok said that the third quarter's growth “fell short of expectations” in a virtual meeting with senior officials during his visit to Washington, asking the officials to “closely monitor internal and external conditions,” according to the ministry.

Meanwhile, the International Monetary Fund predicted that Korea’s GDP per capita would come to $36,132 this year, up 1.6 percent on year, in its World Economic Outlook issued Wednesday. The figure is likely to surpass those of Japan and Taiwan this year, as it did last year, but by a wider margin.

The IMF left its growth forecast for Korea unchanged at 2.5 percent in Tuesday's report.

BY SHIN HA-NEE [[email protected]]