By Veronica Dudei Maia Khongwir
BENGALURU (Reuters) – South Korea’s economy expanded at a slightly slower pace in the final three months of 2023 compared to Q3 as elevated interest rates held back domestic demand despite higher exports, according to economists polled by Reuters.
Households in Asia’s fourth largest economy, among the most indebted globally, are feeling the stress of a cumulative 300 basis points of interest rate hikes by the Bank of Korea since mid-2021, leading to a slowdown in spending.
Gross domestic product (GDP) for the Oct-Dec period grew 0.5% quarter-on-quarter on a seasonally adjusted basis, according to the median forecast of 25 economists in the Jan. 15-22 poll, slightly slower than 0.6% in the previous quarter.
Forecasts ranged from 0.1% to 0.9%, highlighting uncertainties facing the economy. The data will be released on Jan. 25.
“Growth in the fourth quarter is expected to be at a similar pace as in the third quarter. Private consumption was likely sluggish amid high interest rates,” said Ha Keon-hyeong, an economist at Shinhan Securities.
“But, growth will stay robust, despite weak domestic demand, on growing exports of main products such as semiconductors and automobiles.”
After a downturn in most of 2023, exports in the trade reliant economy – a closely watched gauge for global trade – picked up pace towards the end of the year thanks to a surge in chip exports.
But weak demand in China, South Korea’s biggest trading partner and a key driver of the global economy, could disrupt the recent recovery.
On a year-on-year basis, GDP was expected to have expanded 2.1% in the fourth quarter, according to the median forecast of 27 economists, faster than 1.4% in the preceding quarter.
If realised, that would be the fastest growth rate since Q3 2022.
Economic growth was forecast at 2.1% this year, in line with the central bank’s projection, a separate Reuters poll showed.
“In 2024 we foresee a more balanced condition between exports and domestic demand, as the pace of semiconductor recovery normalises and consumption is supported by the utilisation of excess savings,” said Oh Suk-tae, economist at Societe Generale.
(Reporting by Veronica Dudei Maia Khongwir; Polling by Milounee Purohit, Anant Chandak in Bengaluru and Jihoon Lee in Seoul; Editing by Christina Fincher)