South Korea growth fastest in seven years as exports boom

South Korea's economy grew at its fastest pace in more than seven years last quarter as robust exports offset weakness in consumption, reinforcing the case for higher interest rates. Gross domestic product rose 1.4 percent in the third quarter, the Bank of Korea said on Thursday, exceeding the 0.8 percent forecast in a Reuters survey and marking the biggest jump since a 1.7 percent spike in second-quarter 2010.
Growth for the year to September accelerated to 3.6 percent from 2.7 percent in the second quarter. The strong growth data significantly increases chances of a rate hike in the bank's next policy meeting on November 30, said Kim Doo-un, an economist at Hana Financial Investment. "This kind of robust growth is surely a rate-hike ingredient," Kim said. "Shipments out of semiconductors and IT sector in general have been good, and it also seems exports of services also improved in the third quarter."
The Bank of Korea kept its policy rate unchanged at the record low of 1.25 percent on Oct. 19 but one dissenting policymaker called for a hike, prompting some economists to bring forward the timing of the next interest rate hike to November 30, the date of central bank's next policy meeting. Exports grew 6.1 percent in the third quarter after declining by 2.9 percent a quarter earlier, while private consumption growth slowed to 0.7 percent in the July-September period from 1.0 percent.
Exports, which account for about 40 percent of GDP, notched a ninth consecutive month of double-digit growth in September in value terms, the longest stretch of such expansion since 2001. Construction investment increased 1.5 percent, expanding even after the government's toughest-ever housing market rules were announced in August, which included a hike in capital gains taxes for owners of multiple homes and new curbs on mortgages.
Following the GDP data release, a finance ministry official said he now sees this year's growth at around 3.1 percent or 3.2 percent, above the ministry's official forecast of 3 percent released in July.