S. Korea's Fastest Growth Since 2010 Bolsters Rate Hike ViewBy
Economy expands 1.4% in 3Q from 2Q, 3.6% from year earlier
Acceleration due to gains in exports, government spending
South Korea’s economy grew at the fastest pace since 2010 in the third quarter, buoyed by exports and the government’s supplementary budget. The positive data will bolster views expecting a rate increase by the central bank.
- Gross domestic product expanded 1.4 percent in the three months through September from the previous quarter, when it grew 0.6 percent, the Bank of Korea said on Thursday
- The median estimate of economists surveyed by Bloomberg was for a 0.9 percent expansion
- From a year earlier, the economy expanded 3.6 percent, exceeding the 3 percent estimate by economists
- Chung Kyu-il, a director general at the BOK, said in briefing that 2017 GDP growth can reach the BOK’s 3% forecast even if the economy contracts slightly in fourth quarter from the previous period
South Korea’s economy is benefiting from a double-digit expansion in exports, fueled by overseas demand for semiconductors, steel and petrochemical products. The central bank has forecast the economy will expand 3 percent this year, exceeding the potential growth rate. While positive economic signs have strengthened views that the central bank is on track for a rate hike in the near term, Governor Lee Ju-yeol has said he wants time to see if the trend continues, citing uncertainties that include North Korean risks.
- “Based on third-quarter performance, growth for 2017 is likely to exceed 3 percent,” said Lee Sang-jae, an economist for Eugene Investment & Securities Co. in Seoul.
- “The data supports the view that BOK’s key rate will be raised, but I think the actual hike would come next year, not in 2017, as the BOK would want to see continued improvement in private consumption,” Lee said
- “The surprise in GDP data may spread expectations in the market for a November rate hike,” analysts at KB Investment & Securities Co., including Kim Sang-hoon, wrote in a report after the release. “2017 annual growth could be far above South Korea’s potential growth rate estimated at 2.8 percent to 2.9 percent by the central bank.”
- Exports as measured by volume rose 6.1 percent in the third quarter from the previous three months, according to the BOK
- Government spending was up 2.3 percent from the second quarter, while private consumption gained 0.7 percent
- Construction investment increased 1.5 percent and facilities investment gained 0.5 percent
- The BOK’s Chung said that while private consumption growth slowed from the second quarter, its rise from previous year show spending is gradually recovering
- Chung said increases in manufacturing production, exports and government spending were all affected by the long holiday in October, which lead to increased activities the previous month
— With assistance by Myungshin Cho