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South Korea growth slowest since 2009

Seoul's economic growth has slowed to its lowest level since 2009.

Story highlights

  • South Korea's economic growth rate fell to its lowest level in nearly three years
  • Annualized growth slowed to 2.4% in the three months through June
  • Comes as export markets struggle and consumer sentiment has flagged

South Korea's economic growth rate fell in the second quarter to its lowest level in nearly three years as export markets struggled and consumer sentiment flagged.

The Bank of Korea on Thursday said annualised growth slowed to 2.4 per cent in the three months through June, the weakest rate since the third quarter of 2009. On Wednesday, the government said the country's main index of consumer confidence had fallen to its lowest level in five months.

The data will strengthen expectations of a second interest rate cut next month. The central bank surprised economists two weeks ago by cutting its benchmark base rate by 25 basis points to 3 per cent in the first reduction since 2009.

In its explanatory remarks following the rate cut, the central bank said the economy would "sustain a negative output gap for a considerable time going forward, due mostly to the increase in euro area risks and the sluggish economies of its major trading partners".

Annual growth in manufacturing, the biggest sector of the economy, was 2.7 per cent in the second quarter. Manufacturing activity has consistently decelerated following expansion of 7.2 per cent last year and 14.7 per cent in 2010.

Slowing export growth is a major reason for the pressure on South Korea's growth rate. Economic expansion in China, the country's biggest foreign market, is easing, while economic uncertainty in the US and the EU is holding back exports to those regions despite recent trade agreements.

    Exports grew by an annualised 3.2 per cent in the quarter, but declined by 0.6 per cent from the previous quarter, with particularly weak exports of steel and petrochemical products. Fixed investment fell in both construction and facilities, by 1.4 per cent and 2.9 per cent respectively.

    The data mean that South Korea will need a significant pickup in growth in the remainder of this year to meet the BoK's annual growth forecast of 3 per cent. Earlier this month, the bank lowered its forecast by 50 basis points, but economists say the current target is still too optimistic.

    On Wednesday, the central bank said its consumer sentiment index had fallen to 100, indicating an equal balance between respondents who expected an improvement in living standards and those anticipating a decline. This was the lowest level since February, indicating the end of a brief bounce in confidence in the intervening months.

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