Photographer: SeongJoon Cho/Bloomberg

Property Boom Supported Korea’s Economy in Third Quarter

  • Construction investment was main driver of economic expansion
  • Consumption, exports growth slowed from previous quarter

South Korea’s economy grew slightly more than forecast in the three months through Sept. 30, supported by a property market boom, while exports and consumption were disappointing.

Key Points

  • Gross domestic product expanded 0.7 percent in the third quarter from the previous three months, when it gained 0.8 percent; Estimate was for a 0.6 percent increase.
  • The economy expanded 2.7 percent from a year earlier, according to data released Tuesday by the central bank.
  • Biggest contributor to growth was construction investment, which added 0.6 percentage point to expansion from previous quarter; net exports shaved 0.6 percentage point off GDP.
  • BOK Director General Chung Kyu-il said the central bank’s 2.7 percent forecast for 2016 GDP can be achieved so long as the economy doesn’t contract quarter-on-quarter in the last three months of the year.

Big Picture

Strength in the property market has supported South Korea’s economy this year, while traditional growth engines like exports and consumption lost steam. There is uncertainty about how long construction-led growth can continue as the government seeks to rein in swelling household debt and with a looming oversupply in housing. Economic growth may deteriorate in the fourth quarter as headwinds build. An anti-corruption law is affecting spending on entertainment and food while the end of Samsung Galaxy Note 7 production is a blow to exports. Finance Minister Yoo Il-ho has said fourth-quarter growth will show some slowing, but the government doesn’t expect a contraction.

Economist Takeaways

  • “Construction investment and government spending was better than I had expected, and it seems the implementation of extra budget in September certainly helped,” said Stephen Lee, an economist in Seoul for Samsung Securities Co.
  • Krystal Tan, an economist for Capital Economics, wrote in a report after the release that growth will struggle in the coming quarters due to a combination of domestic headwinds and subdued global demand. Tan forecast 2.5 percent growth for this year and next, lower than the BOK’s projections.

The Details

  • Construction investment rose 3.9 percent in third quarter from previous three months.
  • Private consumption increased 0.5 percent from second quarter, while government spending rose 1.4 percent.
  • Exports expanded 0.8 percent while infrastructure investment was down 0.1 percent.
  • Manufacturing contracted 1 percent in third quarter from previous period.
  • BOK’s Chung said a labor strike at Hyundai Motor and Samsung Electronics reflecting its losses related with Galaxy Note 7 both curbed growth in the third quarter.
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