South Korea's economic growth slowed sharply in the third quarter on weaker exports and manufacturing as prospects for the global recovery turn cloudy.
The Bank of Korea said Wednesday that South Korea's gross domestic product expanded 0.7 percent in the three months through September, slowing from 1.4 percent growth in the previous quarter. It was the second straight quarter that growth slowed.
South Korea, Asia's fourth-largest economy, rebounded strongly from the worldwide downturn of 2008-2009, boosted by low interest rates, government stimulus spending and a relatively weak currency that helped exports as overseas demand recovered.
But global growth is now waning after its initial rebound from the depths hit last year. The International Monetary Fund said this month that the world economy will slow to growth of 4.2 percent next year from an expected 4.8 percent this year.
The 0.7 percent quarter-on-quarter growth translates into annualized growth of 3 percent, according to Oh Suk-tae, regional head of research in South Korea at Standard Chartered First Bank Korea.
Overseas shipments and manufacturing, which have been key drivers of South Korea's economic recovery, both slowed markedly in the third quarter.
Exports grew 1.9 percent, down from 7 percent in the second quarter, according to the central bank. Manufacturing, meanwhile, expanded 2 percent, more than halving from 5.2 percent.
"The bottom line is that the global economy is not fully recovered," Standard Chartered First Bank Korea's Oh said of the performance of export-reliant South Korea.
In other categories, capital spending slowed, while agriculture, forestry and fisheries contracted amid bad weather that affected crops such as cabbage, the key ingredient in kimchi, South Korea's national dish.
On the positive side, growth in services and private spending both accelerated, while construction grew after contracting in the second quarter.
GDP expanded 4.5 percent from the same period last year, down from 7.2 percent in the previous three months, the central bank said.
Wednesday's figures are preliminary and may be revised.
The growth results were released before South Korean financial markets opened. The benchmark stock index fell, declining 0.5 percent to close at 1,909.54. The South Korean won declined 1 percent to 1,128 to the dollar, its lowest level in nearly a week.
Despite the slowdown, South Korea's economy remains on track to grow about 6 percent in 2010, far stronger than the 0.2 percent expansion eked out in 2009. Its economy has now expanded for seven straight quarters.
The International Monetary Fund last month raised its annual growth forecast for South Korea to 6.1 percent from 5.75 percent, but predicted the expansion would slow to 4.5 percent next year.
Oh, the economist, also said that growth for the year will come in at about 6 percent, but was more pessimistic for 2011, forecasting an expansion of around 4 percent amid the weak outlook for the world economy.
The Bank of Korea slashed its key interest rate to a record low 2 percent to combat the global downturn, but raised it to 2.25 percent in July amid the domestic economy's solid growth prospects and worries about inflation.
Economists had largely expected another increase this month, but the central bank cited global exchange rate risks as a factor in deciding to keep the rate on hold.
Kwon Goohoon, economist at Goldman Sachs in Seoul, said the central bank will likely raise the rate by a quarter percentage point at its next meeting on Nov. 16, buoyed by Group of 20 finance chiefs last week agreeing to calm international currency tensions and reduce global current account imbalances.
"We expect the G-20 summit to make further progress in reducing global uncertainties, paving the way for a rate hike," he wrote Wednesday, referring to a meeting of leaders from the group of leading rich and emerging countries set for Nov. 11-12 in Seoul.