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Slower Korean economic growth puts 4% target at risk

Q3 GDP up 0.3% vs Q2, missing 0.5-0.6% forecasts; BOK still optimistic on achieving projection

By Oct 26, 2021 (Gmt+09:00)

A department store in Myeong-dong, Seoul, is quiet during a COVID-19 slump earlier this year.
A department store in Myeong-dong, Seoul, is quiet during a COVID-19 slump earlier this year.

South Korea’s economy expanded slower than expected in the third quarter on sluggish private consumption and capital expenditures offset healthy exports, casting doubts over whether Asia’s fourth-largest economy can meet the central bank’s growth target of 4% this year.

The economy grew a seasonally adjusted 0.3% in the third quarter from the previous three months, preliminary Bank of Korea data showed on Oct. 26, falling short of analysts' 0.5-0.6% growth forecasts. The expansion was the slowest since the second quarter of 2020 when the economy shrank 3.2% at the height of the COVID-19 pandemic.

Private consumption, which accounts for about half of the country’s gross domestic product (GDP), eased 0.3% in the July-September period, as the government in July implemented its toughest restrictions ever to contain an uptick in COVID-19 cases. The measures cut household spending in restaurants and cafes.

Capital expenditures tumbled 2.3% in the quarter, the steepest decline since the first quarter of 2019 when corporate investment fell 8.3%. Local companies slashed investment in transportation devices as the global automotive chip shortage waylaid the supply of trucks and sedans.

Construction investment contracted 3.0%, the largest decline in a year, as rising commodity prices hit the construction of infrastructure, including dams and bridges.

Meanwhile, exports rose 1.5%, swinging from a 2.0% contraction in the second quarter, on strong overseas demand for commodities such as petroleum products and machinery as global factories resumed operations.
Container terminal in Busan
Container terminal in Busan

The manufacturing sector’s production edged up 0.2% in the third quarter from the April-June period when the sector shrank 1.3%, while the service sector’s output rose 0.4% on strong banking and insurance businesses.


Despite concerns over the slowing expansion, the BOK was optimistic on meeting the 4% growth target for the whole of 2021, given expectations that the economy is likely to regain momentum in the fourth quarter.

“The economy did not deviate significantly from the BOK’s forecast in August. Annual growth of 4% will be possible should the economy expand 1.04% on a sequential basis during the fourth quarter,” said Hwang Sang-pil, head of the statistics department at the central bank.

“More vaccination and the introduction of the "living with COVID-19" campaign next month will boost private consumption,” Hwang told reporters.

The country plans to gradually phase out pandemic restrictions starting in November to embrace a new scheme of returning to normal life as the nation has achieved its goal of vaccinating 70% of its 52 million people, the government said.


The government's living with Covid move is expected to raise household spending. A 10% increase in people’s movement through the strategy is expected to raise credit card use for face-to-face service sectors such as restaurants by about 5%, or 1.2 trillion won ($1 billion) a month, according to a BOK analysis.

The government will also offer measures to support the domestic economy.

It will cut taxes on gasoline, diesel and liquefied petroleum gas (LPG) by a record 20% from Nov. 12 to April 30 next year to alleviate the burden of fuel prices on drivers and ease inflationary pressure, according to the finance ministry. The country also plans to resume discount coupon programs in a bid to prop up consumption.
A gas station in Seoul
A gas station in Seoul

Exports held strong with overseas sales in the first 20 days of October surging 36.1% to $34.2 billion from a year earlier.

“As the supply chain shock eases in the fourth quarter, supply of parts and raw materials is expected to improve,” said Park Seok-gil, an economist at JPMorgan. “As the service sector’s production increases through the living with COVID measures, the economy will achieve the 4% growth target.”

Write to Ik-Hwan Kim at

Jongwoo Cheon edited this article.
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