Korea's Q3 GDP stalls, casts doubt on 2024 growth target

Containers are stacked up under gantry cranes at a port in Busan, Oct. 14. Yonhap

Korea faces uncertainty in reaching annual growth targets set at mid-2 percent for 2024, after its economy barely grew in the third quarter.

The country’s gross domestic product (GDP) from July to September expanded a seasonally adjusted 0.1 percent from the previous quarter, according to the Bank of Korea's (BOK) advance estimates, Thursday.

The BOK’s estimates came after the economy advanced at 1.3 percent in the first quarter but contracted 0.2 percent in the second quarter.

The figures suggest that the GDP would need to gain 1.2 percent in the final three months to meet the BOK’s 2024 growth projection at 2.4 percent.

The growth rate in the fourth quarter would need to be even higher than 1.2 percent, to meet the Ministry of Economy and Finance’s annual growth forecast at 2.6 percent.

Under the circumstances, BOK Governor Rhee Chang-yong said “A revision may be necessary on the BOK’s full-year growth estimate” as he attended the annual meeting of the International Investment Forum in Washington, Thursday (local time).

The central bank will revise next its quarterly economic forecasts in November.

In particular, Rhee pointed out that exports “remained considerably sluggish” in the third quarter.

A key driver of growth, exports fell 0.4 percent to mark the first decline since the final quarter of 2022.

Such decline brought in a net negative contribution of growth, as imports increased 1.5 percent.

The BOK chief hinted at a protracted slowdown in exports, citing the lackluster Chinese economy, heightened geopolitical tensions across the globe, a down cycle in the IT industry and other outside risks on a trade-dependent Korean economy.

Also in Washington for a trip, Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok hinted at a downward revision of the government’s annual growth forecast.

“Downside risks regarding the prospect for this year's economic growth have grown," he told reporters, adding, “The government may take into account such risks as it works on an update of economy policy objectives in December.”

Experts from the private sector voiced concerns that the country had a higher chance of missing its annual growth target.

“I would say reaching the growth goal at 2.4 percent or higher is extremely unlikely,” Park Sang-hyun, a researcher at iM Securities, said.

He pointed out that the GDP growth in the third quarter was lower than market expectation at 0.5 percent, noting that "such disappointing outcome comes from structural risks in the national economy that are feared to weigh down the growth potential chronically.”

Moon Da-woon, a researcher at Korea Investment & Securities, said that private spending, another key growth driver, is “gradually recovering” but the pace of recovery is not sufficient enough to offset the negative impact of exports on the economy.

Private spending ticked up 0.5 percent in the third quarter, marking a turnaround from a 0.2 percent dip in the previous quarter.

Asked about possible measures to boost the economy, Hana Securities analyst Jeon Kyu-yeon noted that the pace of the BOK’s rate-cutting cycle will be crucial.

The BOK brought down its base rate by 0.25 percentage point to 3.25 percent, Oct. 11, shifting away from more than three years of monetary tightening.

The pace of rate cuts, however, was lower than a 0.5 percentage point deduction carried out by the U.S. Federal Reserve following its respective hawkish monetary policy.

The BOK remains cautious over whether to deliver additional rate cuts, due to snowballing household debts. The Fed, on the other hand, is poised to further lower the rate.