Bengaluru (Reuters) – According to a Reuters poll, the South Korean economy likely returned to growth in the last quarter after experiencing a slight contraction in the previous quarter. This growth was attributed to an expansion in exports, which counteracted the impact of higher borrowing costs on domestic demand.
After a surprise 0.2% decline in the April-June quarter, South Korea, which ranks as Asia’s fourth-largest economy, was projected to have achieved a seasonally adjusted growth rate of 0.5% in the third quarter. This projection was based on a median forecast from 23 economists.
In terms of annual growth, the economy expanded by 2.0% in the recent quarter, according to the median forecast of 26 economists surveyed between October 15 and 21. This was a decrease from the 2.3% growth observed in the previous quarter.
Khoon Goh, head of Asia research at ANZ, stated, “We expect Q3 GDP data to show lackluster growth. While exports remained robust, sluggish domestic demand, as reflected by various high-frequency indicators, including retail sales and construction, was a drag.”
South Korea’s monthly exports had increased by nearly 10% on average up to September this year. This growth was primarily driven by semiconductor demand from the United States, which helped the trade-dependent country avoid a technical recession, typically defined as two consecutive quarters of contraction. However, the growth rate of exports had slowed in recent months due to moderated trade with China, South Korea’s largest trading partner, as well as with Japan and India.
Rising borrowing costs are impacting domestic consumption, an effect compounded by household debt levels that rank among the highest in the developed world. To rejuvenate weak demand, the Bank of Korea (BOK) decreased its policy rate by 25 basis points this month from a 15-year peak of 3.50%.
Despite this adjustment, the BOK is anticipated to maintain its current rate for the remainder of the year and is only expected to cut rates by 50 basis points next year. In contrast, the U.S. Federal Reserve is projected to lower rates by 150 basis points by the end of 2025, based on separate Reuters polls.
Suktae Oh, chief Korea economist at Societe Generale, commented, “A modest rebound in GDP growth should support the BOK pivot that we saw at the October meeting, but a back-to-back rate cut in November is unlikely, in our view, given the lingering concerns on the housing market.”
With China’s recovery being uneven and demand from the U.S. slowing, South Korea’s economic growth was anticipated to average 2.4% this year, consistent with the central bank’s revised forecasts.
