Original title: The third quarter data upset South Korea’s economy is difficult to weather the cold
After setting the fastest year-on-year growth rate in a decade in the second quarter, South Korea’s economy took a declining roller coaster in the third quarter and ended with lower-than-expected data. Behind this, although exports are strong, domestic demand is still weak, investment is also weak, and various factors are superimposed, leading to the ultimate unsatisfactory. As for the fourth quarter, it may still be not optimistic. Even if the increase in vaccination rate makes domestic demand hopeful, the bottleneck of the global supply chain still exists, and external demand will become a shortcoming.
Lower than expected
Stagnation was the key word for South Korea’s economy in the third quarter. On October 26, local time, the Bank of Korea announced economic data for the third quarter. Overall, due to the decline in domestic demand in South Korea and the weak investment in construction and equipment, South Korea’s economic growth slowed significantly in the third quarter.
According to data, South Korea’s GDP in the third quarter grew by 4% year-on-year, which was not only far lower than the 6% growth in the second quarter, but also lower than the previous estimate of 4.3%. From a month-on-month perspective, the decline was even more pronounced. The third-quarter GDP grew by 0.3%. %, lower than the 0.8% increase in the second quarter and only half of the 0.6% expected by economists.
Compared with the first half of this year, these data are really not optimistic. Affected by the epidemic last year, South Korea experienced negative growth for two consecutive quarters in the first and second quarters of last year, with growth rates of -1.3% and -3.2% respectively. Starting from the third quarter, the economy began to recover. In the first quarter of this year and the second quarter of this year, the GDP growth rate reached 2.2%, 1.1%, 1.7% and 0.8% respectively. Among them, the year-on-year growth rate in the second quarter reached 6%, a record high in the past ten years.
Specifically, the weakness in the third quarter was mainly manifested in consumption and investment. During the quarter, South Korea’s private consumption fell by 0.3% compared with the second quarter, facility investment fell by 2.3%, and construction investment fell by 3%. The contribution rates of these three indicators to GDP decreased by 0.1, 0.2, and 0.4 percentage points, respectively.
In contrast, the performance of exports is remarkable, with an increase of 1.5%, becoming the main driving force for growth. Among them, exports are mainly coal, machinery, etc., which increase by 1.5%, and net exports increase GDP by 0.8 percentage points. In addition, government spending has also increased significantly, with an increase of 1.1%.
Regarding the economic situation for the whole year, the Bank of Korea’s previous August forecast was 4%. At that time, just after the second quarter data was released, the International Monetary Fund (IMF) raised its forecast for South Korea’s economic growth this year to 4.3%. The Bank of Korea’s analysis believes that if the quarter-on-quarter economic growth rate exceeds 0.65% in the second, third, and fourth quarters of this year, the annual economic growth rate this year will reach 4%.
Right now, the third quarter’s data is close to 0.65%, which means that it is not easy for South Korea to achieve 4% annual economic growth. However, the Bank of Korea is still relatively optimistic, believing that the economic rebound in the last three months of this year will drive the economy to achieve the expected annual growth of 4%. Central bank officials plan to take a closer look at the weak economic performance, and this result reflects global supply chain hindrances that have hurt investment and epidemic restrictions that weaken household spending.
Will there be a rate hike?
The pressure has come to the Bank of Korea. After all, the outside world is watching. What plans will this Asian country make for the first interest rate hike since the epidemic?
On August 26 this year, the Bank of Korea decided to raise the benchmark interest rate by 25 basis points from 0.5% to 0.75%, making it the first advanced economy to raise interest rates during the global COVID-19 pandemic. At the same time, this is the first time the Bank of Korea has raised interest rates in 2 years and 9 months. In October, the Bank of Korea decided to keep the benchmark interest rate unchanged at 0.75%.
But at a press conference after the meeting, the Bank of Korea Governor Lee Joo-yeol said that unless there are special risks, interest rate hikes can be reasonably considered at the November meeting. In Li Juyeol’s view, it is expected that the increase in vaccine penetration rate and the relaxation of the epidemic blockade restrictions will provide a new growth engine for South Korea’s economy. Market analysis also believes that although market interest rates have not been continuously raised in October, in order to solve the recent financial imbalances such as price increases and surges in household debt, the Financial Commission may raise the benchmark interest rate next month.
According to economist Justin Jimenez, although South Korea’s economic growth in the third quarter was lower than expected, this may not prevent the Bank of Korea from issuing a strong signal to raise interest rates in November.
In fact, after the release of the third quarter data, the Bank of Korea also stated that the economic recovery is still continuing. In addition, the South Korean government bond yields climbed after the release of the data that day, indicating that investors did not see this as an obstacle to raising interest rates.
Regarding interest rate hike considerations, Li Zhulie once responded to a question on “whether it is necessary to raise the benchmark interest rate to deal with the issue of high oil prices and animal price increases”. He said that the consumer price index (CPI) has risen by more than 2% for several consecutive months, and inflation It is one of the important considerations. It is expected that further increases in energy prices, including oil prices, will have a greater impact on domestic prices, and the increase in CPI may exceed expectations in August.
Indeed, the current trend of rising prices in South Korea is obvious. In September, producer prices in South Korea rose by 7.5% year-on-year, which was the largest increase since April 2011; at the same time, South Korea’s CPI rose by 2.5% year-on-year in September. This is the 6th consecutive month that consumer prices have risen by more than 2%, significantly exceeding the target value of the government’s price management.
In order to deal with potential inflation, raising interest rates is just one of South Korea’s tactics. On the 26th, Park Wan-joo, a member of the Democratic Party of Korea’s ruling party, said that the South Korean government plans to temporarily cut fuel taxes by a record 20% to ease the upward pressure on inflation caused by soaring oil prices. At present, the average gasoline price in South Korea has exceeded 1700 won (approximately RMB 9.26), a seven-year high.
Not optimistic in the fourth quarter
According to Li Jiacheng, a researcher at the Chahar Society and an associate professor at the School of International Relations of Liaoning University, the decline in the third quarter is a normal performance. South Korea is still in the fourth wave of epidemic spread, although the vaccination rate has exceeded 70%, including epidemic prevention measures. , The internal economic vitality is restrained by the epidemic, and the restraint on the economy is quite obvious.
“In fact, South Korea’s economic performance has not been ideal in recent years. Although the economy is still growing, in reality, ordinary people have not gained much sense of economic growth. Even if there is no epidemic disturbance, South Korea is still facing housing prices. The increase is particularly large and the problem of inflation.” Li Jiacheng pointed out.
Looking forward to the fourth quarter, Li Jiacheng believes that actual growth may not be too high. Although from the perspective of domestic demand, from October to the end of the year, it is also the shopping season and discount season in South Korea. Consumption including online may have a certain recovery, but in terms of foreign trade, South Korea is more affected by the external market.
At present, the world is experiencing an unprecedented round of supply chain crisis. From automobiles to commodities, from North America to the Asia-Pacific, there is nothing to disturb. In the United States, more than 100 ships line up outside the largest port of Los Angeles and the second largest port of Long Beach, and more than 200,000 containers “float” on the coastline.
South Korea cannot be alone. In October alone, global container shipping prices tripled compared to the same period last year. In the context of rising shipping prices, in the first half of this year, South Korean export companies’ freight expenditures increased by more than 30% year-on-year. The consumer side is also affected. Most of the frozen French fries used by Korean fast-food chains are imported from the United States. Due to the interruption of transportation, many stores are in a state of long-term out-of-stock or shortage.
The IMF has lowered its global economic growth forecast for this year by 0.1 percentage point to 5.9% from 6% three months ago. IMF chief economist Geeta Gopinat pointed out that the economic prospects of low-income countries have dimmed a lot due to the worsening of the epidemic situation; the economic situation of advanced economies has also become difficult recently due to the disruption of the supply chain.
“Uncertainty is still relatively strong,” said Li Jiacheng. Investment will also be closely related to the epidemic situation. If the epidemic counters in the winter and market confidence is insufficient, investment will be affected.
As for whether the government will take measures to escort the economy, such as monetary policy or fiscal stimulus, Li Jiacheng believes that it may also depend on whether the Moon Jae-in government wants to inject new boosters into the economy. The term of this government is about to end with about half a year left. If Moon Jae-in wants to leave a better economic market for the next government or give himself a beautiful finishing touch, he may be more proactive in economic measures.
Beijing Commercial Daily reporter Tang Yitian
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