South Korea’s economic growth beats estimates, backing rate pause

SEOUL  – South Korea’s economy fared better than expected in the third quarter with the expansion underpinned by exports, backing the case for the central bank to keep rates on hold for the months ahead.

Gross domestic product (GDP) grew 0.6 percent in the July-September quarter from three months earlier, data from the Bank of Korea showed on Thursday, the same pace as the prior quarter and beating a median 0.5 percent increase forecast in a Reuters survey.

The report points to an economy that is still in a soft patch and undergoing an exports-based recovery after a cumulative 300 basis points of interest rate hikes since August 2021 weighed on indebted households and restrained spending.

In the third quarter, exports expanded 3.5 percent after declining 0.9 percent in the preceding three months, while private consumption grew 0.3 percent after contracting 0.1 percent in the second quarter.

READ: South Korea exports fall less than expected in August

Government spending grew 0.1 percent, and construction investment expanded 2.2 percent after contracting 0.8 percent in the second quarter.

Facility investment has been a drag, contracting 2.7 percent on-quarter.

On an annual basis, Asia’s fourth-largest economy grew 1.4 percent in the third quarter, after a 0.9 percent gain in the second quarter and beating a 1.1 percent rise expected by economists.

South Korea’s central bank held interest rates steady for a sixth straight meeting last week, retaining a tightening bias on monetary policy as it warned of inflationary risks from the Israel-Hamas conflict and global oil prices.

READ: Bank of Korea holds interest rates steady, as expected

In a separate Reuters survey conducted early this month, South Korea’s economic growth was forecast to slow to 1.2 percent in 2023 from 2.6 percent in 2022. That is lower than the government and the central bank’s projection for 1.4 percent.