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Bloomberg
Weaker-than-expected growth in South Korea’s economy is raising fresh questions about whether the Bank of Korea will get its long-awaited interest rate hike next month.
While stronger net exports helped sustain expansion, a second-straight quarterly decline in corporate capital investment and a sharp drop in hiring are evidence that the economy is losing steam.
Gross domestic product expanded 0.6 percent in the three months ended in September from the previous quarter, versus the median estimate of 0.8 percent. From a year earlier, the economy grew 2.0 percent, below a 2.3 percent forecast. This was the slowest since 2009, due to especially strong growth in the year-earlier period. The contribution of net exports to GDP was 1.7 percentage points. Facilities investment fell 4.7 percent after dropping 5.7 percent the previous quarter.
“If the BOK wants to increase the policy rate, it needs to provide good excuses, but none make much sense for a rate hike next month as the economy doesn’t look good, inflation remains benign and growth in household debt is slowing,” said Cho Young-moo, an economist at LG Economic Research Institute.
The central bank cited rising external risks when it left its policy rate unchanged last week, even as Governor Lee Ju-yeol delivered a hawkish signal that he will soon seek to address growing financial imbalances, including record household debt and a widening rate gap with the U.S. He later said the BOK bank would consider raising rates next month as long as the economy remained stable.
Given the latest data, the economy may not even meet the BOK’s new 2018 growth forecast of 2.7 percent, said Joo Won, an economist at Hyundai Research Institute. “The downward trend of economic growth has become more apparent.”
The U.S.-China trade war could definitely hurt South Korea, Joo said, especially if it worsens China’s own economic slowdown. “If the trade battle hits China’s domestic market, it will be fatal for Korea’s exports,” he said.