South Korea’s GDP grew just 0.4% on quarter in the third quarter, a slower pace than the second quarter’s 1%, the Bank of Korea’s preliminary estimates revealed on Thursday.

The weak growth rate undershot market consensus. A Reuters poll of 26 economists had anticipated 0.5% growth.

Although preliminary data could be revised later, no drastic changes are anticipated. The BOK forecast Korea’s GDP growth rate at 2.2% this year, but it looks set to fall below 2% unless the economy expands by around 1% in the fourth quarter.

Korea suffered surprise negative quarter-on-quarter growth of –0.4% in the first quarter; GDP rebounded in the third quarter due to a rise in government spending.

According to Q3 data, exports rose 4.1% led by exports of semiconductors and automobiles, while imports rose only 0.9%,

Facilities investments rose 0.5% with an increase in transportation equipment investment. However, investments in machinery such as semiconductor manufacturing equipment decreased. Construction investment also fell by 5.2%.

Private sector spending rose just 0.1% on the back of consumption of durable goods such as cars. Consumption for overseas travel drastically fell due to trade and historical disputes with neighboring Japan.

Growth depends on Seoul spend

Unless external conditions improve dramatically, Korea’s fourth-quarter GDP growth will depend heavily on the government’s fiscal spending.

“Although the private sector’s contribution to growth shifted into positive territory in the third quarter, it remains to be seen whether it is sustainable,” an expert told Asia Times. “The growth in the fourth quarter, thus, is expected to be heavily affected by the government’s fiscal spending.”

Government spending rose by 1.2%. But, its contribution to the growth weakened to 0.2%p from 1.2%p of the second quarter while the private sector and net exports’ contribution to the growth turned to the positive of 0.2%p and 1.3%p, respectably.

An official of the Ministry of Finance told Asia Times that annualized growth of 2% GDP could be possible. “We have a fiscal spending plan for each quarter and manage its contribution to growth,” he said. “Government spending in the fourth quarter will continue to contribute to growth.”

However, the official was cautious about the private sector. “We need to see whether the private sector can continue to contribute to growth,” he said.