S. Korean economic growth slows to 4-year low in Q3

By Kim Soo-yeon

SEOUL, Oct. 24 (Yonhap) -- The South Korean economy grew at the slowest pace in four years in the third quarter due to sluggish domestic demand and lagging export growth, the central bank said Friday, raising expectations of an additional rate cut.

The country's real gross domestic product (GDP) expanded 0.6 percent on-quarter
in the July-September period, compared with a 0.8 percent expansion in the second
quarter, according to an advance estimate by the Bank of Korea (BOK). It was the
lowest figure since the economy grew 0.5 percent in the third quarter of 2004.
Asia's fourth-largest economy grew 3.9 percent in the third quarter from a year
ago, sharply down from a 4.8 percent on-year expansion in the second quarter, it
added. The figure marked the weakest growth since the second quarter of 2005 when
it rose 3.4 percent on-year.
GDP, the broadest measure of an economy's performance, is the total value of
goods and services produced by the economy in a given period.
"The pace of the economic slowdown is quickening. Global financial turmoil and
the economic slump hurt domestic demand and it seems that export growth is losing
steam faster than expected," Choi Chun-sin, director general of the BOK's
economic statistics department, told a press conference.
"This year, the Korean economy is likely to grow less than the BOK's previous
estimate of 4.6 percent."
His remarks came as South Korean households and smaller firms, whose debts are
piling up, have increasingly been cutting their spending amid a slowing economy
and the global financial turmoil.
"Domestic demand remains sluggish and a global economic downturn is expected to
dent export growth further next year," said Lee Sung-kwon, an economist at
Goodmorning Shinhan Securities Co. "Another rate cut cannot be ruled out in
November, given worsening consumer sentiment."
Exports of goods, which account for about 50 percent of South Korea's GDP, fell
1.8 percent on-quarter in the three months ended Sept. 30, after rising 4.3
percent in the second quarter.
Private spending, one of the main growth engines of the South Korean economy,
gained 0.1 percent, compared with a 0.2 percent contraction in the preceding
quarter.
Facility investment rose 2.3 percent in the third quarter, after gaining 0.9
percent three months earlier, and construction investment expanded 0.3 percent
after dropping 1 percent in the previous quarter.
Experts said the weaker growth readings will likely prompt the BOK to slash the
benchmark 7-day repo rate in November to bolster the slowing economy.
The BOK cut its key interest rate to 5 percent from 5.25 percent in October in a
concerted effort to soothe global financial turmoil and stem the drastic slowdown
of the local economy.
BOK Gov. Lee Seong-tae told a parliamentary audit on Thursday that it would be
difficult for the local economy to make 4 percent growth next year although it
may see growth in the 3-percent range. He expected that exports would not see
double-digit growth in 2009. The Korean economy expanded 5 percent in 2007.
On Sunday, the government unveiled a US$130 billion plan aimed at guaranteeing
banks' foreign debts and providing a much-needed liquidity injection. The package
accounts for roughly 15 percent of the country's GDP.
The government also plans to spend around 9 trillion won ($6.4 billion) to boost
the country's sluggish construction sector and revive the broader economy. The
BOK decided on Thursday to raise the cap on its low-rate loans to commercial
lenders for the first time in 7 years in a bid to help smaller companies weather
the current cash crunch.