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South Korea’s economic growth slowed in the third quarter, as strong exports were offset by weak domestic consumption due to the country’s most stringent Covid-19 restrictions, clouding the Bank of Korea’s outlook for a further rate hikes this year.
Gross domestic product rose 0.3% in the July-September period, up from 0.8% in the second quarter and missing a growth forecast of 0.6% in a Reuters survey.
Asia’s fourth-largest economy grew 4% from a year earlier, slowing sharply from 6% growth in the second quarter, which was the fastest in a decade.
Lower quarterly growth was widely expected as health officials struggled to contain the country’s worst virus outbreak after daily infections topped 1,000 as of July. Exports increased 1.5 percent in the third quarter from the previous quarter, while private consumption fell 0.3 percent.
The BoK said at an online seminar on Monday that consumption is expected to resume in the current quarter, aided by increased vaccinations and a transition to “living with Covid-19”. More than 70 percent of the country’s 51 million people have been fully immunized.
The bank has flagged China’s energy crisis and supply chain bottlenecks as downside risks to the Korean economy, although exports remain robust. Foreign shipments jumped 36.1% in the first 20 days of October from a year earlier, according to customs data.
BoK Governor Lee Ju-yeol said the central bank would consider another rate hike in November after South Korea became the first major Asian economy in August to tighten monetary policy since the start of the pandemic.
The BoK is expected to raise its benchmark interest rate by 25 basis points to 1% on November 25 to mitigate growing financial risks amid inflation and household debt.
“As Korea’s recovery lost momentum in the last quarter as the virus weighed on growth, the economy is expected to accelerate again this quarter as high immunization levels help roll back containment measures “, said Alex Holmes, Asia economist at Capital Economics, in a statement. report. “[But] the BoK is unlikely to be dissuaded from further tightening today’s data.