Weaker-than-expected economic growth is raising fresh questions about whether the Bank of Korea (BOK) 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 South Korean economy is losing steam.
It is no surprise that growth is slowing — the central bank trimmed its economic forecast for this year last week. The question is whether the latest numbers are bad enough and rising external risks severe enough that BOK policymakers stand pat again next month.
GDP rose 0.6 percent in the three months ending September from the previous quarter, versus the median estimate of 0.8 percent.
Compared with a year earlier, the economy grew 2 percent, below a 2.3 percent forecast.
It 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,” LG Economic Research Institute economist Cho Young-moo said.
The central bank cited rising external risks when it left its policy rate unchanged last week, even as BOK Governor Lee Ju-yeol delivered a hawkish signal that he would soon seek to address growing financial imbalances, including record household debt and a widening rate gap with the US.
He later said the BOK would consider raising rates next month as long as the economy remained stable.
Given the latest data, the economy might not even meet the BOK’s new growth forecast of 2.7 percent for this year, Hyundai Research Institute economist Joo Won said. “The downward trend of economic growth has become more apparent.”
The US-China trade war could definitely hurt South Korea, Joo said, especially if it worsens China’s economic slowdown.
“If the trade battle hits China’s domestic market, it will be fatal for [South] Korea’s exports,” he said.
The BOK yesterday held a meeting to discuss the impact of the US stock rout. It reiterated that South Korea’s economic fundamentals are stable and said it would closely monitor conditions.
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