Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Widening trade deficit hurts Korea's Q3 growth
Hwang Sang-pil, head of the Bank of Korea's (BOK) economic statistics bureau, gives a briefing on Korea's growth in the third quarter at the BOK headquarters in central Seoul, Thursday. Yonhap
By Yi Whan-woo
By Yi Whan-woo
The widening trade deficit is increasingly denting Korea's growth, with poor net exports dragging down the economy by 1.8 percent in the third quarter, up from 1 percent three months earlier, according to an advance estimate from the Bank of Korea (BOK), Thursday.
Accordingly, the country's gross domestic product (GDP) between July and September grew a seasonally-adjusted 0.3 percent from the April-June period, marking the slowest growth since the third quarter of 2021 at 0.2 percent.
Whether Korea can achieve the BOK's 2022 growth target of 2.6 percent remains uncertain as export growth is anticipated to slow further in the fourth quarter, according to experts.
They also pointed out, in the forecast for private spending, which offsets the poor net exports, that it is weakening due to high inflation and steep rate hikes.
Private spending expanded by 1.9 percent quarter-on-quarter in the July-September period, but such a pace of growth was lower than a 2.9 percent gain from the previous three months.
Government spending also slowed from an increase of 0.7 percent to one of just 0.2 percent.
“Exports during the first 20 days of this month declined from a year earlier," Hwang Sang-pil, head of the BOK's economic statistics bureau, said, in reference to the nation's trade deficit for the sixth consecutive month through September.
The six-month losing streak is the first in 25 years, with import prices shooting up due to the energy crunch and strong dollar, while exports eased due to cooling global demand.
The country's trade shortfall reached $3.77 billion in September. The aggregate trade deficit between January and September amounts to a 66-year high of $28.8 billion.
Exports grew 1 percent quarter-on-quarter in the third quarter, a turnaround from the 3.1 percent contraction in the second quarter when GDP grew by 0.7 percent.
The third-quarter export figure still remains relatively small compared with the 3.6-percent rise tallied in the first quarter.
Imports rose 5.8 percent in the third quarter, compared with the 1-percent fall registered a quarter earlier.
Under the circumstances, Hwang said, “The recovery in private spending will likely continue but interest rates and elevated inflation are expected to moderate the pace of the recovery.”
The BOK official forecast that the country should be able to achieve the 2022 growth outlook of 2.6 percent as long as the fourth-quarter rate does not fall sharply below zero.
However, Kim Jung-sik, a Yonsei University economics professor, remained pessimistic about the country's growth outlook.
“Growth in the final quarter of 2022 possibly will be lower compared to that of the third quarter because exports and private spending will face more unfavorable circumstances,” he said, listing the supply chain disruptions, aftereffects of the housing bubble and liquidity risks escalated by the Legoland crisis.
The professor urged the central bank to embrace incremental rate increases, saying, “They can add to the woes of individual and corporate borrowers and further affect spending.”