South Korea’s economic growth slowed sharply in the third quarter amid weaker exports and manufacturing, the central bank said yesterday.
South Korea, Asia’s fourth-largest economy, has rebounded strongly from the global downturn, boosted by low interest rates, government stimulus spending and robust exports, along with a relatively weak currency and a recovery in overseas markets.
In the three months ended Sept. 30, GDP expanded 0.7 percent, the Bank of Korea announced, slower than the 1.4 percent growth racked up in the previous three months. The economy has now slowed for two straight quarters.
Still, South Korea’s economy has now expanded for seven straight quarters after contracting during the final six months of 2008 and is on track to grow this year at a far stronger pace than the 0.2 percent expansion eked out last year.
Exports and manufacturing, which have been key drivers of the economic recovery, both slowed markedly in the third quarter.
Exports grew 1.9 percent, down from 7 percent in the second quarter. Manufacturing, meanwhile, expanded 2 percent, compared with growth of 5.2 percent the previous three months.
Agriculture, forestry and fisheries contracted amid bad weather that affected crops such as cabbage, the key ingredient in kimchi.
On the positive side, growth in services and private spending both accelerated, while construction grew after contracting in the second quarter. GDP grew 4.5 percent from the same period last year.
Yesterday’s figures are preliminary and may be revised.
The Bank of Korea slashed interest rates to a record low 2 percent to combat the global downturn, but raised its key borrowing cost to 2.25 percent in July amid a strong growth outlook and worries about inflation. Economists had largely expected another increase this month, but the central bank cited global exchange rate risks as a factor in deciding to keep the rate on hold.
Bank of Korea Governor Kim Choong-soo yesterday stressed the need to draw up policy options to curb excessive cross-border capital flows in order to sustain stable growth.
“In light of past experience, we have no choice but to be concerned about the problems capital inflows pose for macro-economic management,” Kim told European businessmen.
He said sound macro-economic policies are “the first line of defense” in reducing vulnerability to external shocks.
“Events that might trigger a crisis situation such as an overhang of short-term external debts or lack of foreign reserves should be promptly resolved,” he said.
South Korea was hard hit by the 1997 Asian financial crisis because of its buildup of external debt and severe lack of reserves.
Over the long term, Kim said countries need to develop their currency markets to ensure that exchange rates are not swayed by swings in capital flows. Options aimed at moderating the volume of capital flows must be considered “as a second step,” he said.
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