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South Korean economy slowed down in Q3 2016

South Korean economy expanded in Q3 2016 by 0.7% on seasonally adjusted basis, decreasing slightly the pace of growth of 0.8% in the previous period, but surpassing market expectations for growth of 0.6%. The private spending and investment rose at a slower pace, while government spending considerable progress.

At year-on-year basis the economy grew by 2.7%, representing a slowdown compared to growth of 3.3%. The situation could be better, but the problems of the local industry, including the debt issue of the shipbuilding companies and the low sales of Samsung Electronics and Hyundai Motor, pushed the economy down.

During the quarter, South Korea headed the giant strike of employees of Hyundai Motor, continuous debt crisis in shipbuilding sector, bankruptcy of largest shipping company Hanjin Shipping and abandoned production of smartphone Galaxy Note 7, withdrawing it from the market because of security problems. All these put the economy under pressure and caused the slow down during the reported quarter.

The production fell by 1.0% in Q3 2016, the crisis in Samsung, the worst strike in the corporate history of Hyundai Motor almost destroyed growth of 1.2% in the second quarter. Despite the end of the strikes, we will not see an immediate jump in production in the fourth quarter, as the major problems of the economy remains. The calls for monetary easing can shift focus to demand fiscal expansion after reducing the main bank interest rates led to strong growth of household debt, reduced costs and gaining stocks at manufacturers. Most economists foresee a new reduction in interest rates early next year, believing that today’s data may encourage the central bank to keep interest rates at their current level for a longer period.

The pace of GDP growth in South Korea averaged 1.66% between 1970 and 2016, reaching a record 6.8% in Q1 1988 and a record low of -7% in Q1 1998.

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