Korea: Economy accelerates in Q3 driven by domestic demand
October 25, 2013
In the third quarter, GDP expanded 3.3% over the same period last year. The expansion was above the 2.3% increase observed in Q2 and represents the fastest growth since Q4 2011. The reading was just shy of market expectations of a 3.2% rise.
Domestic demand was the main factor in driving faster growth in the third quarter, which supported the government's policy of shifting away from exports as a growth engine. Private consumption increased 2.2% over the same quarter last year (Q2: +1.8% year-on-year), while government spending moderated somewhat compared to the previous quarter (Q3: +3.1% yoy; Q2: +3.8% yoy). Meanwhile, gross fixed investment accelerated at the fastest pace in three years, growing 5.6% in Q3 (Q2: +2.9% yoy).
Conversely, the external sector deteriorated somewhat in Q3. Exports of goods and services expanded 2.9% (Q2: +5.7% yoy) and imports also expanded 2.9% (Q2: +4.7% yoy). Consequently, the external sector's net contribution to overall economic growth fell from 1.0 percentage points in Q2 to 0.3 percentage points in Q3, the weakest contribution since 2010.
A sequential analysis confirms the acceleration suggested by the annual data. GDP expanded a seasonally-adjusted 1.1% in Q3, which followed a similar increase in the previous quarter.
The Bank of Korea left its 2013 growth forecast unchanged in October and still expects the economy to grow 2.8%. However, the Bank revised its growth projections for 2014 and now expects the economy to expand 3.8%, which is below its previous estimate of 4.0% growth.
FocusEconomics Consensus Forecast panelists see the economy growing 2.6% this year, which is unchanged from last month's estimate. For 2014, the panel projects the economy to expand 3.5%, which is up 0.1 percentage points from last month's Consensus.
Author: Ricardo Aceves, Senior Economist