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South Korea's Q3 GDP q-o-q growth seen slowing, no quick recovery seen: poll

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South Korea's economy continued to grow in the third quarter but at a slower pace than in the second, when government spending lifted the pace following a contraction in January-March, a Reuters poll found on Tuesday. The median forecast from 26 economists for gross domestic product in July-September was to expand by a seasonally adjusted 0.5 per cent from the previous quarter, when it grew 1.0 per cent.

[SEOUL] South Korea's economy continued to grow in the third quarter but at a slower pace than in the second, when government spending lifted the pace following a contraction in January-March, a Reuters poll found on Tuesday. The median forecast from 26 economists for gross domestic product in July-September was to expand by a seasonally adjusted 0.5 per cent from the previous quarter, when it grew 1.0 per cent.

During the third quarter, a supplementary budget aimed at supporting growth kicked in.

"Though contributions from domestic demand will remain sluggish, government expenditure likely continued steady due to supplementary budget, while contributions from net exports were seen improving on slowing imports," said Lee Sang Jae, economist at Eugene Investment & Securities.

In annual terms, third-quarter growth was expected to remain steady at 2.1 per cent from 2.0 per cent in April-June, according to the poll. Thirty economists provided year-on-year growth estimates.

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Despite the economy showing some signs of stabilisation, economists do not expect any immediate recovery in growth as recent indicators pointed to further weakness, with global risks remaining high.

South Korea's producer prices index contracted 0.7 per cent in September from a year earlier, central bank data showed on Tuesday, sharper than in August and the fastest annual decline since a 1.1 per cent drop in September 2016.

Exports plunged 19.5 per cent during the first 20 days of October from a year earlier, pressured by weak sales to China and frail global demand for semiconductors.

MORE SUPPORT NEEDED?

"It is premature to expect a substantial turnaround," said Ma Tieying, economist at DBS Bank, adding that external conditions remain challenging, with a global growth slowdown and unresolved trade conflicts.

"The negative spillovers on the domestic economy could continue to spread in the coming quarters, requiring stronger fiscal and monetary policy support," she added.

South Korea's economy, the fourth-largest in Asia after China, Japan and India, is on track for growth of around 2% this year. It would be far below the government's original target of 2.6-2.7 per cent and the weakest since the 2008/09 global crisis.

For 2018, South Korea reported growth of 2.7 per cent.

"Export data for the next two months will be the main factor deciding whether the economy could maintain a 2 per cent growth in 2019," Park Sang Hyun, Hi Investment & Securities' economist, said.

Last week, South Korea's central bank cut its policy interest rate for the second time in three months and left the door open for further easing although another cut is not expected soon. The next policy meeting, the last of 2019, is Nov 29.

The Bank of Korea will release advance estimates of third-quarter gross domestic product at 8.00am on Thursday (2300 GMT Wednesday).

REUTERS