By Rahul Trivedi
BENGALURU (Reuters) – The South Korean financial system probably returned to progress final quarter after a light contraction within the prior quarter due to an export-led enlargement that offset larger borrowing prices squeezing home demand, a Reuters ballot discovered.
After an sudden 0.2% contraction within the April-June quarter, Asia’s fourth-largest financial system was projected to have grown a seasonally adjusted 0.5% within the third quarter, in response to a median forecast from 23 economists.
On an annual foundation, the financial system expanded 2.0% final quarter, in response to the median forecast of 26 economists polled Oct. 15-21, down from 2.3% within the earlier quarter.
“We expect…Q3 GDP data to show lackluster growth. While exports remained robust, sluggish domestic demand, as reflected by various high-frequency indicators, including retail sales and construction, was a drag,” stated Khoon Goh, head of Asia research at ANZ.
South Korea’s month-to-month exports have grown by nearly 10% this yr on common up to September, largely pushed by semiconductor demand from america, serving to the trade-dependent financial system keep away from a technical recession generally outlined as two consecutive quarters of contraction.
Nonetheless, the tempo of export progress has cooled in latest months as commerce moderated with China – South Korea’s high buying and selling accomplice – in addition to Japan and India.
Excessive borrowing prices are impacting home consumption amid family debt ranges which might be among the many highest within the developed world.
In a bid to revive ailing demand, the Financial institution of Korea (BOK) reduce its coverage fee by 25 foundation factors this month from a 15-year excessive of three.50%.
Nonetheless, the BOK is predicted to keep up its present stance for the remainder of the yr and solely reduce 50 foundation factors subsequent yr, whereas the U.S. Federal Reserve is predicted to scale back charges by 150 foundation factors by end-2025, in response to separate Reuters polls.
“A modest rebound in GDP growth should support the BOK pivot that we saw at the October meeting, but a back-to-back rate cut in November is unlikely, in our view, given the lingering concerns on the housing market,” stated Suktae Oh, chief Korea economist at Societe Generale (OTC:).
Amid an uneven restoration in China, and slowing demand from the U.S., South Korea’s financial progress was anticipated to common 2.4% this yr, aligning with the central financial institution’s downwardly revised forecasts.