S Korea's Q3 GDP miss forecasts, supply disruptions add pressure

(Corrects typographical error in lede.)

By Joori Roh

SEOUL : South Korea's economy grew at a slower-than-expected pace in the third quarter, as subdued private consumption and weak construction and facility investment offset robust exports.

Gross domestic product (GDP) grew a seasonally adjusted 0.3per cent in the third quarter, the Bank of Korea (BOK) data showed on Tuesday, the slowest in five quarters and following a 0.8per cent rise in the preceding three months. It also fell short of the 0.6per cent growth tipped in a Reuters survey.

Private consumption, which generates nearly half of South Korean GDP, contracted 0.3per cent in the September quarter after a 3.6per cent rise in the second quarter, while construction and facility investments also swung to declines of 3.0per cent and 2.3per cent, respectively.

Exports grew 1.5per cent, recovering from the June quarter's 2.0per cent contraction, on strong sales of semiconductors and petroleum products.

"The toughened social distancing measures and impacts from the heat wave and rising raw material prices that continued over the third quarter seem to have limited the recovery in domestic demand ... but exports were seen propping up the economy," Finance Minister Hong Nam-ki said.

From a year earlier, the economy expanded 4.0per cent, in part because of the low base last year, while both exports and imports picked up further on global economic recovery.

That was, however, a significant slowdown from the second quarter's 6.0per cent growth, and missed market forecast growth of 4.2per cent.

"The data does not diverge much from the August projection. Annual growth of 4per cent will be possible should the economy expand 1.04per cent on a sequential basis during the fourth quarter," a senior BOK official Hwang Sang-pil told reporters.

The BOK currently sees the economy growing 4per cent for the whole of 2021 after shrinking 0.9per cent last year.

Economists, however, are concerned global supply chain disruptions and inflation pressures may pose risks to the fourth-quarter outlook.

"The near-term outlook for exports and manufacturing sector is likely to be clouded by sustained concerns about the global supply bottleneck," Societe Generale's economist Oh Suk-tae said.

But the economy could regain steam as the government aims to scrap the COVID-19 curbs by early 2022, which could add a further boost to consumption. The three-phase scheme begins on Nov. 1.

"With the transition to a new COVID-19 scheme in November, the expansion in private consumption will contribute to the economic recovery, while the oil tax cut announced earlier today will also help boost consumption," Hwang said.

The finance ministry said it will temporarily cut down domestic tax on key oil products by a record 20per cent to reduce pressures from surging oil prices.

(Reporting by Joori Roh; Editing by Sam Holmes)