South Korea's economy has surpassed expectations in the third quarter, with growth primarily driven by exports. This robust performance reinforces the argument for the central bank to maintain its current interest rates in the coming months.
According to data from the Bank of Korea, Gross Domestic Product (GDP) expanded by 0.6% in the July-September quarter compared to the previous three months. This growth rate matches that of the previous quarter and surpasses the median forecast of a 0.5% increase in a Reuters survey. These figures suggest that the economy is still navigating a somewhat challenging phase while experiencing a recovery driven by exports. This resurgence comes after the cumulative 300 basis points of interest rate hikes implemented since August 2021, which had placed pressure on heavily indebted households and restrained consumer spending.
In the third quarter, South Korea's exports showed considerable growth, expanding by 3.5% following a 0.9% decline in the preceding three months. Private consumption also improved, with a 0.3% growth rate after a 0.1% contraction in the second quarter. Government spending experienced a 0.1% increase, and construction investment rebounded significantly, expanding by 2.2% after a 0.8% contraction in the second quarter. However, facility investment remained a drag on the economy, contracting by 2.7% on a quarterly basis.
On an annual basis, South Korea's economy recorded a 1.4% growth rate in the third quarter, surpassing the 0.9% gain seen in the second quarter and exceeding the 1.1% rise anticipated by economists.
The Bank of Korea recently kept interest rates unchanged for the sixth consecutive meeting, maintaining a tightening bias on monetary policy. This decision was made in light of concerns about inflationary pressures stemming from global events such as the Israel-Hamas conflict and fluctuating global oil prices.
In a separate Reuters survey conducted earlier this month, economic growth in South Korea is projected to slow to 1.2% in 2023, down from 2.6% in 2022. This forecast is slightly lower than the government and the central bank's projection of 1.4%.
The resilience of South Korea's economy amid various challenges underscores its ability to adapt to evolving economic conditions while providing valuable insights into the country's economic trajectory in the coming months.