South Korea’s economy barely grew last quarter, registering just 0.1% growth from the previous period, according to the Bank of Korea (BOK).
This result fell short of the expected 0.4% growth, emphasizing the challenges posed by a cooling export sector, geopolitical uncertainties, and the potential effects of the U.S. presidential election on trade-reliant countries.
The country’s GDP increased by 1.5% compared to the same period last year, also missing the 2% forecast.
With rising global risks, the BOK may revise its growth outlook in its rate-setting meeting next month.
The central bank had previously projected 2.4% growth for the year but started adjusting its policies with a rate cut earlier this month.
South Korea’s technology sector, a global leader, is witnessing a slowdown in memory-chip exports, raising questions about the future strength of demand, particularly with the rapid development of artificial intelligence.
This limited return to growth could pressure the BOK to cut rates sooner than expected.
“It’s a dilemma,” said Lee Seun-suk of the Korea Economic Research Institute.
“If the economic situation turns out worse than expected, the BOK may need to lower rates again. No one knew the export momentum would sputter so soon.”
Real exports dropped, led by a decline in automobile and chemical shipments, while imports rose by 1.5%.
Despite this, private consumption grew by 0.5%, and facility investment surged by 6.9%, driven by spending on equipment like chip-making machinery.
President Yoon Suk Yeol has resisted calls for large-scale government stimulus, opting instead to limit fiscal spending and encourage business growth through the private sector.
This reflects concerns about rising national debt following the pandemic, during which former President Moon Jae-in increased spending to support small businesses and consumer confidence.
When the BOK cut rates this month, it argued that earlier action could have overheated Seoul’s property market.
Governor Rhee Chan-yong noted that the decision also reflected slower inflation and a consideration of the economy’s lon-term growth prospects.
Looking ahead, most economists expect the BOK to hold rates steady at its next meeting, but there is speculation about when future cuts might come.
Analysts predict easing through 2024, as South Korea’s export-reliant economy faces the dual challenges of waning global demand and geopolitical instability, including North Korea’s involvement in Russia’s war and the ongoing U.S.-China trade tensions.
The South Korean trade ministry has already warned that export growth may slow in the final quarter, despite remaining positive overall.
Delays in the recovery of global manufacturing, especially in the U.S. and China, continue to cast a shadow over the outlook.
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