(Bloomberg) -- South Korea’s economy grew at a slower pace in the third quarter, putting one of Asia’s key bellwethers for world trade on track for the smallest expansion since the global financial crisis.

Gross domestic product increased 0.4% from the previous quarter, the Bank of Korea said in a statement, compared with a median estimate from economists for a 0.5% gain. From a year earlier, the economy expanded 2%, as projected in a Bloomberg survey.

Key Insights

  • Heavily dependent on trade for growth, South Korea has taken a hit from the trade war between the U.S. and China, its two biggest trading partners. While exports performed better in the third quarter, economists worry that the effect of the prolonged weakness has weighed on investment plans.
  • President Moon Jae-in said Tuesday that the economy was in a “grave situation” amid the spread of trade protectionism, adding that an expansionary fiscal policy was essential over the coming year.
  • The Bank of Korea is doing its part to help support growth, last week cutting its benchmark interest rate to match a record low of 1.25%.
  • The central bank warned that the economy would grow less than its 2.2% projection for the year. BOK Governor Lee Ju-yeol said the trade war probably trimmed South Korea’s economic growth by 0.4 percentage point this year.
  • Consumer prices fell for the first time ever in September and producer prices have fallen for three months in a row. South Korean officials have downplayed deflation risks, blaming higher-than-usual food prices last year.
  • “South Korea is still an export oriented economy and exposed to global supply chains and hence feels the impact of the global slowdown in GDP growth and trade,” said Arjen van Dijkhuizen, an economist with ABN Amro. “The bilateral conflict between South Korea and Japan is not helping either.”

What Bloomberg’s Economists Say

“The headwinds to South Korea’s economy remain strong. Global growthwill likely remain tepid in the year ahead -- especially among major trading partners. Even with the tentative trade truce, China’s economy -- the destination of about a quarter of South Korea’s overseas sales -- is due to slow. If hostilities with the U.S. resume, it would likely slide even further.”--Justin Jimenez, Bloomberg Economics

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  • Exports rose 4.1% in the third quarter, according to the BOK, while imports rose 0.9%.
  • Construction investment fell 5.2% while facilities investment rose 0.5%.
  • Private spending rose 0.1%.
  • Government spending increased 1.2%.

(Updates with extra chart and figures)

To contact the reporter on this story: Sam Kim in Seoul at skim609@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Paul Jackson, Peter Pae

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