October 22, 2019 / 2:17 AM / a month ago

South Korea's third quarter GDP quarter-on-quarter growth seen slowing, no quick recovery seen: Reuters poll

SEOUL (Reuters) - South Korea’s economy continued to grow in the third quarter but at a slower pace than in the second, when government spending lifted the pace following a contraction in January-March, a Reuters poll found on Tuesday.

FILE PHOTO: A man walks in a park at a business district in Seoul, South Korea, March 23, 2016. Picture taken on March 23, 2016. REUTERS/Kim Hong-Ji

The median forecast from 26 economists for gross domestic product in July-September was to expand by a seasonally adjusted 0.5% from the previous quarter, when it grew 1.0%.

During the third quarter, a supplementary budget aimed at supporting growth kicked in.

“Though contributions from domestic demand will remain sluggish, government expenditure likely continued steady due to supplementary budget, while contributions from net exports were seen improving on slowing imports,” said Lee Sang-jae, economist at Eugene Investment & Securities.

In annual terms, third-quarter growth was expected to remain steady at 2.1% from 2.0% in April-June, according to the poll. Thirty economists provided year-on-year growth estimates.

Despite the economy showing some signs of stabilization, economists do not expect any immediate recovery in growth as recent indicators pointed to further weakness, with global risks remaining high.

South Korea’s producer prices index contracted 0.7% in September from a year earlier, central bank data showed on Tuesday, sharper than in August and the fastest annual decline since a 1.1% drop in September 2016.

Exports plunged 19.5% during the first 20 days of October from a year earlier, pressured by weak sales to China and frail global demand for semiconductors.

MORE SUPPORT NEEDED?

“It is premature to expect a substantial turnaround,” said Ma Tieying, economist at DBS Bank, adding that external conditions remain challenging, with a global growth slowdown and unresolved trade conflicts.

“The negative spillovers on the domestic economy could continue to spread in the coming quarters, requiring stronger fiscal and monetary policy support,” she added.

South Korea’s economy, the fourth-largest in Asia after China, Japan and India, is on track for growth of around 2% this year. It would be far below the government’s original target of 2.6-2.7% and the weakest since the 2008/09 global crisis.

For 2018, South Korea reported growth of 2.7%.

“Export data for the next two months will be the main factor deciding whether the economy could maintain a 2% growth in 2019,” Park Sang-hyun, Hi Investment & Securities’ economist, said.

Last week, South Korea’s central bank cut its policy interest rate KROCRT=ECI for the second time in three months and left the door open for further easing although another cut is not expected soon. The next policy meeting, the last of 2019, is Nov. 29.

The Bank of Korea will release advance estimates of third-quarter gross domestic product at 8:00 a.m. on Thursday (2300 GMT Wednesday).

Editing by Richard Borsuk

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