By Kim Jae-won
The Korean economy grew at its slowest pace in three years in the third quarter, due to a deepening slump in domestic demand and the global economic downturn.
The slowdown has raised concerns that the country has already entered a prolonged low growth stage.
The Bank of Korea (BOK) said Friday that the nation’s gross domestic product (GDP), the broadest measure of economic performance, expanded 1.6 percent between July and September year-on-year, the lowest growth since the third quarter of 2009 when it grew 1 percent. On a quarter-on-quarter basis, the GDP rose 0.2 percent.
Economists say that the worse-than-expected data is grim for the nation’s outlook, which has already been undermined by the prolonged eurozone debt crisis and weakening Chinese economy. The BOK cut the country’s 2012 growth forecast to 2.4 percent earlier this month, but experts said they are not sure whether it can even reach that level.
Increasing household debt and a weak property market have damaged consumption as consumers tighten their purse strings; while exports are starting to fall.
“The Korean economy will stay sluggish due to uncertain overseas economic circumstances and rising household debt in the domestic market. It will be muddling through for some more time,” said Shin Chang-mok, an economist from Samsung Economic Research Institute.
Companies are delaying making big capital investments due to the economic uncertainty. Private spending, one of the main growth engines of the Korean economy, grew 0.6 percent, picking up from 0.4 percent in the preceding quarter.
Facility investment contracted 4.3 percent after falling 7 percent in the second quarter, while construction spending grew 0.2 percent, a turnaround from a 0.4 percent decline in the previous quarter.
The consumer sentiment index came in at 98 for October, down one point from the previous month, hitting the lowest mark this year since January, according to the BOK. A reading below the benchmark 100 means pessimists outnumber optimists.
Exports, which account for about 50 percent out of the GDP, gained 2.5 percent in the third quarter boosted by increased shipping of petrochemical and wireless telecommunications products.
Others say the Korean economy bottomed out in the third quarter, and will rebound in the fourth thanks to active fiscal and monetary policies.
“With economic activity set to pick up on the back of recent easing measures, lightening up the mood, growth will gain momentum over the final quarter of this year,” said Ronald Man, an economist from HSBC.
The BOK cut the benchmark interest rate by 25 basis points to 2.75 percent earlier this month, pressured by the low economic growth.
The finance ministry also announced in September new measures to boost the economy, including temporary income tax refunds and a consumption tax cut.