Â© FILE PHOTO: A shopkeeper waits for customers at Noryangjin fisheries wholesale market in Seoul, South Korea, July 6, 2023. REUTERS/Kim Hong-Ji/File photo
By Jihoon Lee and Youn Ah Moon
SEOUL () – South Korea’s economic growth is expected to have weakened in the third quarter, as high borrowing costs weighed on consumer spending and exports recovered at a slow pace, a survey showed, pointing to a challenging last few months of 2023.
Gross domestic product (GDP) for the July-September period is projected to have grown 0.5% quarter-on-quarter on a seasonally adjusted basis, according to the median forecast of 25 economists in the survey conducted Oct. 18-23.
That compares with the 0.6% expansion in the second quarter, which was the fastest rate in a year and largely driven by net exports contribution which economists said would also underpin the September quarter.
South Korea’s exports are slowly turning a corner, with the mildest fall in shipments seen last month in a yearlong downturn. Overall, however, the fragile global outlook remains a drag on offshore demand and on Asia’s fourth-largest economy whose 2023 growth is set to be its slowest in three years.
Worryingly, the downturn in private consumption is expected to have deepened last quarter as high interest rates hurt spending.
“The construction sector rebounded in the third quarter with the government easing property regulations and the manufacturing sector expanded on a recovery of the IT industry cycle, but the services sector remained weak due to high interest rates and inflation,” said Ha Keon-hyeong, an economist at Shinhan Securities.
South Korea’s key policy rate is currently at a near 15-year high of 3.5%, with the central bank last week standing pat for the sixth meeting. However, policymakers retained a tightening bias and warned of inflationary risks from the Israel-Hamas conflict and global oil prices.
Households have borne the brunt of high borrowing costs, with consumer sentiment in September slipping to its lowest level in four months.
“Gong forward, we are unlikely to see a clear improvement in the growth of private consumption, and economic growth will be mostly led by net exports and facility (business) investments,” said Park Sung-woo, an economist at DB Financial Investment.
On a yearly basis, GDP was expected to have expanded 1.1% in the third quarter, compared with 0.9% in the second quarter. That would be the fastest growth rate since the last quarter of 2022.
In a separate survey conducted early this month, South Korea’s economic growth was forecast to slow to 1.2% in 2023 from 2.6% in 2022, followed by a partial recovery to 2.1% in 2024.
South Korea will report its advance estimates for the third-quarter GDP on Thursday, Oct. 26, at 8 a.m. (2300 GMT on Wednesday).