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By Sam Kim Updated on
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Growth on track for worst performance since financial crisis
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Export gains suggest global tech sector could be over worst
Gross domestic product increased 0.4% from the previous quarter, the Bank of Korea said in a statement, compared with an estimate by economists of 0.5%. From a year earlier, the economy expanded 2%, as projected in a Bloomberg survey.
While exports rose in the quarter, improving from the sharp falls seen at the beginning of the year, the extended run of export weakness and doubts about the strength of overall growth are weighing on investment. Concerns over weakening investment provide another reason for the government and central bank to continue bolstering their support for the economy.
Following the BOK’s rate cut last week to support prices and growth, Governor Lee Ju-yeol said the effects of the trade war would likely trim South Korea’s economic growth by 0.4 percentage point this year.
That leaves the economy needing a sharp acceleration in the last three months of 2019 to stop growth from falling below 2%. An expansion of almost 1% in the fourth quarter will be needed to achieve that, with annual growth of 1.8% more likely, according to Cho Yong-gu, a fixed-income strategist at Shinyoung Securities.
The improvement in exports, which grew 4.1% in real terms from the second quarter, indicates that weakness in the global tech sector may be over the worst. The BOK noted growth in semiconductor and car shipments compared with the previous three months.
“There are some signs of a recovery in exports,” Cho said. “But the trade war has clearly taken a toll on shipments and falling exports have led to a slump in facilities investment.”
If facilities investment hurt most in 1Q, construction is to blame for 3Q woes
Governor Lee acknowledged the likelihood of growth falling below 2% in parliament after the release of the GDP data. With interest rates already at a record low Lee said the government’s fiscal policy had a role to play in boosting growth in the fourth quarter. Lee has said there’s no need for non-conventional policy support yet, though the central bank is looking at its options.
Bank of Korea in Easing Mode Spurs Speculation QE May Be Needed
President Moon Jae-in said earlier this week that an expansionary fiscal policy was essential over the coming year, given the economy’s “grave situation” amid the spread of trade protectionism.
Still, some economists said the central bank would have to keep playing its part as the government ramps up spending to prop up growth and prices, which recently began to fall.
“South Korea is where the world confirms the impact of the U.S.-China trade war on economic growth,” said Lee Sang-jae, chief economist for Eugene Investment & Securities. The problem for Korea is that because its small economy is so open to global trends, the power of fiscal policy is more limited than in other less export-reliant economies.
“Deflationary trends are growing chronic and the BOK faces a choice like other global central banks to pursue an aggressive monetary policy,” he said.
What Bloomberg’s Economists Say
“South Korea’s stepped-up policy support failed to offset downward pressure on the economy in 3Q from the U.S.-China trade war. A drop in investment and drag from net exports weighed on growth, while consumption slowed. We expect more policy support to shield the economy from external risks -- with fiscal policy taking the lead as the Bank of Korea’s policy ammunition runs low.”
--Justin Jimenez, Bloomberg Economics
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Article 2: Japan's economy:
https://www.wsj.com/articles/japans-economy-grew-less-than-expected-in-third-quarter-11573691974
<>Japan’s Economy Hits the Skids—and Things Are Likely to Get Worse
U.S.-China trade dispute and Tokyo’s frictions with South Korea weighed on Japanese exports
yMegumi Fujikawa
TOKYO—Japan’s economy grew at the slowest pace in a year as the U.S.-China trade dispute and Tokyo’s frictions with South Korea weighed on exports.
Japan, the world’s third-largest economy after the U.S. and China, expanded at an annualized rate of 0.2% during the July-September quarter, following a 1.8% expansion in the previous quarter. It was the fourth straight quarter of growth but the slowest pace in a year.
Economists said the slowdown in the global economy would pressure the Japanese economy in the current quarter, when consumption is also expected to soften owing to the impact of a sales tax increase on Oct. 1.
Real exports fell 0.7% on quarter during July-September. Exports of goods were nearly flat, reflecting weakness in China, while service exports declined 4.4%—the biggest drop in seven years.
Spending by tourists in Japan, which shows up as an export of services in the national accounts, suffered because Korean visitors fell by more than half after a clash between Seoul and Tokyo over World War II history and other issues.
“These two factors are unlikely to improve dramatically,” said Mari Iwashita, chief market economist at Daiwa Securities. “It is difficult to expect any positive contribution from external demand in the
October-December period.”
A powerful typhoon that hit a wide swath of the country in October is also likely to damp consumption in the quarter.
Ms. Iwashita expects the Japanese economy to shrink by annualized 2.1% in the final quarter of 2019, although she forecasts a return to growth next year when the effects of the tax increase on consumption are likely to recede.
The economy may also get support from a bigger-than-usual extra budget for the final months of the fiscal year, which ends in March, as well as spending for the year beginning April 2020. Last week, Prime Minister Shinzo Abe called for spending to rebuild areas hit by recent natural disasters. He also cited global risks such as the U.S.-China trade dispute.
Neighbor's Pain: China's slowing growth has hurt Japan'seconomy.Japanese exports to China, change fromprevious yearSource: Japan Ministry of Finance
“One of the biggest reasons why we are compiling an economic stimulus package is the slowdown in the global economy as developments around the world are affecting supply chains including Japan,” economy minister Yasutoshi Nishimura said Thursday. “We will keep in mind the possibility that growing global uncertainties might affect consumer sentiment.”
The government will also pay close attention to the impact of the tax increase last month, but any negative effects should be smaller than the previous increase in April 2014, Mr. Nishimura said.
Private consumption, which accounts for more than half of gross domestic product, increased slightly in the July-September quarter as consumers bought more durable goods such as air conditioners and daily necessities such as cosmetics. The national sales tax rose to 10% on Oct. 1 from 8%.
Volatility in consumption was relatively limited because the government introduced measures to keep spending going after the tax increase. Food is exempt from the increase, and many stores are offering government-funded discount programs for purchases made with smartphone apps, credit cards or other noncash means.