Wed, Dec 05, 2018 - Page 10 News List

South Korean data belie troubled economic outlook

Bloomberg

South Korea’s growth and inflation figures met expectations — and the central bank’s price target — but failed to ease concern that the outlook is deteriorating for Asia’s fourth-largest economy.

GDP expanded 0.6 percent in the third quarter from the previous three months, matching a preliminary estimate from the Bank of Korea, while consumer prices last month rose 2 percent from a year earlier, as forecast by economists, according to Statistics Korea.

While the US and China appear to have struck a temporary truce in their trade war, South Korea’s export-dependent economy remains exposed if the pair cannot patch up their differences.

China is South Korea’s biggest trading partner and most of what it ships there are intermediate goods that form building blocks in products sold around the world.

Economic growth and inflation figures are unlikely to prompt any change by the bank at its meeting next month, after it last week raised its key interest rate for the first time in a year to 1.75 percent from 1.5 percent.

While Bank of Korea Governor Lee Ju-yeol has left the door open for further monetary tightening — saying it is still below the so-called neutral rate — he is partly tied to changes at the US Federal Reserve, which remain fluid.

During his confirmation hearing in the legislature yesterday, South Korean Minister of Economy and Finance Hong Nam-ki said the economy is in a “difficult situation,” with sluggish investment and employment, and weakening growth potential.

Complicating the picture, falling global oil prices, together with a fuel-tax cut, could weigh on inflation. Demand-side inflation pressure is weak.

GDP expanded 2 percent in the third quarter from a year earlier, also matching the previous estimate by the central bank. The year-on-year figure was the weakest in nine years.

Versus the previous month, the consumer price index (CPI) decreased 0.7 percent, compared with a projected 0.6 percent drop.

The month-on-month drop was largely due to price declines in vegetables and fruit, while the fuel-tax cut also contributed.

Core CPI accelerated 1.3 percent compared with a year earlier.

On a quarterly basis, exports rose 3.9 percent in the third quarter, facilities investment fell 4.4 percent, government spending increased 1.5 percent, construction investment dropped 6.7 percent and private spending advanced 0.5 percent.

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