ISLAMABAD: SEOUL: Slowdown in South Korea’s economic recovery is expected to cause the country’s growth rate to hover under 1 percent for the second quarter in a row, forecast data by the government, central bank and local think tanks showed Monday.
According to the estimates, economic growth for the third quarter will likely be in the mid zero percent level, and be similar to the 0.6 percent numbers tallied for the April-June period of this year.
The latest predictions based on data provided by the Bank of Korea (BOK), the finance ministry and private research institutes, added that Asia’s fourth-largest economy will be challenged by household debt of around 1,400 trillion won (US$1.2 trillion), the North Korean risks and a rise in U.S. interest rates going forward.
“Under such circumstances, the government’s target of 3 percent growth for this year may not be attainable,” a market watcher said.
South Korea’s economy expanded 1.1 percent in the first quarter helped by gain in construction, facility investment and exports, but numbers started to dip in the following three months as production and consumption all backtracked.
For the third quarter, local analysts, pointed out industrial output for August remained at a standstill compared to the previous month.
Numbers showed, in particular, retail sales contracting 1 percent from 0.1 percent growth posted for July.
Facility investment was down for the second straight month in August with a weaker number being reported for the construction sector.
In addition, the composite consumer sentiment index compiled by the BOK showed figures falling 2.2 points to 107.7 for September, the second month in a row that this number, which reflects confidence in the future, has declined.
The only silver lining is in exports that surged 35 percent on-year last month to a record high of $55.13 billion. This marked the 11th straight month that outbound shipments increased rose vis-a-vis the previous year.
Other observers said that with most estimates placing South Korea’s growth at 0.5-0.7 percent for the third quarter, it will be hard for the country to reach 3 percent growth for the whole of this year unless fourth quarter figures are very strong.
“This year’s growth will likely reach 2.7-2.8 percent with fourth quarter growth advancing 0.5 percent,” said Ju Won, a senior researcher at Hyundai Research Institute. “Fourth quarter numbers are expected to remain weak as consumer spending and construction sector sustains further losses.”
Other factors that could weigh down the economy are the North Korean risks that can not only shake up the financial market, but the overall economy, especially if tensions escalate between Pyongyang and Washington.
The central bank, meanwhile, said the country needs to grow 0.77 percent for the third and fourth quarters, respectively, to achieve 3 percent growth in 2017.
After posting 3.3 percent growth in 2014, the country’s GDP moved up 2.8 percent in 2016 and last year.
Related to the growth, the BOK is expected to release its forecast for the country on Oct. 19. In July it predicted 2.8 percent growth for this year.