South Korea economy returns to growth in third-quarter as stimulus kicks in

SEOUL (Reuters) - South Korea’s economy returned to growth in the third quarter, recovering from its sharpest contraction in more than a decade, as the government pushed through stimulus measures and major trading partners eased coronavirus restrictions.

A woman looks at her mobile phone at the Myeongdong shopping district in Seoul, South Korea, April 25, 2017. Picture taken April 25, 2017. REUTERS/Kim Hong-Ji/Files

Asia’s fourth-largest economy grew a seasonally adjusted 1.9% in the September quarter from the June quarter, the Bank of Korea said on Tuesday, logging its fastest expansion since the first quarter of 2010.

That reverses a 3.2% decline in the second quarter, which was the sharpest since 2008, and beats a Reuters poll forecast of a 1.7% expansion.

Alex Holmes, an economist at Capital Economics, forecast a 1% contraction in GDP this year, noting ongoing risks from the severity of the pandemic in the United States and Europe.

“While this would be the worst performance since 1998, it would still make Korea one of the best performing economies in the world this year,” he said.

The BOK, which has cut interest rates to a record low of 0.5%, has forecast a 1.3% contraction for the year, potentially the biggest contraction in more than two decades.

Finance Minister Hong Nam-ki said the GDP data confirmed the growth trajectory was beginning “to normalize, which is important in that it encourages we can overcome the crisis.”

The government last month began rolling out the final of four extra budgets to inject a total of about 310 trillion won ($274.83 billion) of fiscal stimulus.

Exports soared 15.6% in the third quarter in sequential terms, rebounding the fastest since 1986 and reversing a 16.1% contraction in the second quarter.

The construction sector was not as buoyant, though there were some signs that factory production is improving with manufacturing sector output up 7.6% from the second quarter.

Construction investment was a drag, declining 7.8% on-quarter, while private consumption fell 0.1%.

On a year-on-year basis, the economy shrank 1.3% in the third quarter, after declining a revised 2.7% in the second quarter.

Reporting by Cynthia Kim; editing by Jane Wardell