Samsung Electronics

South Korea feels effect of Europe's debt crisis as growth slows

Economy expands at 3-year low of 1.6pc amid drop in exports and investment

PUBLISHED : Saturday, 27 October, 2012, 12:00am
UPDATED : Saturday, 27 October, 2012, 3:19am

South Korea's economy grew at the slowest pace in three years as Europe's debt crisis and a slowdown in emerging markets reduced corporate investment and capped demand for exports.

Gross domestic product expanded 1.6 per cent in the three months to September from a year earlier, the slowest pace since 2009, Bank of Korea data showed yesterday. That compares with the median 1.7 per cent estimate of 13 economists surveyed. Asia's fourth-largest economy grew 0.2 per cent from a quarter ago.

Samsung Electronics, whose annual sales are the equivalent of 13 per cent of gross domestic product, yesterday reported higher-than-estimated earnings, bolstering the view that the worst of the slowdown has passed. The gains by the world's biggest maker of mobile phones may also support the government's wait-and-see stance on any further stimulus for the economy.

"This confirms that the Korean economy is at the bottom," said Sun Yoo, an economist at Woori Investment & Securities. "Growth is weak but it is there, with slight upturns in exports and domestic consumption."

Consumer confidence fell to a nine-month low this month, according to a separate statement from the Bank of Korea.

The central bank lowered its forecast for the nation's growth this year to 2.4 per cent from a July estimate of 3 per cent. The economy would expand 3.2 per cent next year, and the inflation rate this year would be 2.3 per cent, below an earlier prediction of 2.7 per cent.

Finance Minister Bahk Jae-wan said this month the nation's economy might see a "weak" rebound this quarter after hitting bottom in the previous three months.

The Bank of Korea has cut interest rates twice this year and the government has unveiled 14.4 trillion won (HK$102.2 billion) of economic support measures.

The world economy would grow 3.3 per cent this year, the slowest since the 2009 recession, and 3.6 per cent next year, compared with July predictions of 3.5 per cent and 3.9 per cent respectively, the International Monetary Fund said on October 9.

It also reduced its forecasts for Korea, now projecting 2.7 per cent growth for this year and 3.6 per cent for next year.

Korea's exports fell last month for a third consecutive month from a year earlier. Sales at major department stores declined for the fourth straight month.