South Korea’s Q3 Economic Growth Expected to Weaken, Posing Challenges for 2023
Economic Growth Projected to Slow in Q3
A recent Reuters survey indicates that South Korea’s economic growth is likely to have weakened in the third quarter. This can be attributed to high borrowing costs, which have had a negative impact on consumer spending. Additionally, exports have been recovering at a slow pace. These factors point to a challenging last few months of 2023 for the country.
Projected GDP Growth for Q3
The survey, conducted between October 18-23, reveals that economists expect the gross domestic product (GDP) for the July-September period to have grown by 0.5% quarter-on-quarter on a seasonally adjusted basis. This is slightly lower than the 0.6% expansion recorded in the second quarter, which was primarily driven by net exports contribution.
Slow Recovery in Exports
Although South Korea’s exports have shown signs of improvement, with the mildest fall in shipments seen last month in a yearlong downturn, the overall global outlook remains fragile. This continues to impact offshore demand and the country’s economy, which is expected to experience its slowest growth in three years.
Challenges in Private Consumption
The downturn in private consumption is expected to have deepened in the last quarter, primarily due to high interest rates. The construction sector rebounded in Q3, aided by eased property regulations, and the manufacturing sector expanded due to the recovery of the IT industry cycle. However, the services sector remained weak, mainly due to high interest rates and inflation.
Monetary Policy and Consumer Sentiment
South Korea’s key policy rate currently stands at a near 15-year high of 3.5%. Although the central bank has maintained this rate for the sixth meeting, policymakers have expressed concerns about inflationary risks stemming from the Israel-Hamas conflict and global oil prices. High borrowing costs have negatively impacted households, with consumer sentiment reaching its lowest level in four months in September.
Outlook for the Future
Going forward, experts predict that private consumption will not see a clear improvement in growth. Instead, economic growth is expected to be driven by net exports and facility investments. On a yearly basis, GDP is projected to have expanded by 1.1% in Q3, compared to 0.9% in Q2, marking the fastest growth rate since Q4 2022.
Forecasts for Economic Growth
In a separate Reuters survey conducted earlier this month, economists forecasted a slowdown in South Korea’s economic growth to 1.2% in 2023, down from 2.6% in 2022. However, there is a partial recovery expected in 2024, with a growth rate of 2.1%.
South Korea is set to release its advance estimates for third-quarter GDP on Thursday, October 26, at 8 a.m. (2300 GMT on Wednesday).
