South Korea sees economic growth slow from 1.4 to 0.7 percent

South Korea's economic growth slowed sharply in the third quarter amid weaker exports and manufacturing, the central bank said Wednesday.

South Korea, Asia's fourth-largest economy, has rebounded strongly from the global downturn, boosted by low interest rates, government stimulus spending and robust exports along with a relatively weak currency and a recovery in overseas markets.

In the three months ended Sept. 30, gross domestic product expanded 0.7 percent, the Bank of Korea announced, slower than the 1.4 percent growth racked up in the previous three months. The economy has now slowed for two straight quarters.

Still, South Korea's economy has now expanded for seven straight quarters after contracting during the final six months of 2008 and is on track to grow in 2010 at a far stronger pace than the 0.2 percent expansion eked out in 2009.

The International Monetary Fund last month raised its annual growth forecast for South Korea's economy to 6.1 percent from 5.75 percent, but predicted the expansion would slow to 4.5 percent next year.

Exports and manufacturing, which have been key drivers of the economic recovery, both slowed markedly in the third quarter. Exports grew 1.9 percent, down from 7 percent in the second quarter. Manufacturing, meanwhile, expanded 2 percent, compared with growth of 5.2 percent the previous three months.

Agriculture, forestry and fisheries contracted amid bad weather that affected crops such as cabbage, the key ingredient in kimchi, South Korea's national dish.

On the positive side, growth in services and private spending both accelerated, while construction grew after contracting in the second quarter.

GDP grew 4.5 percent from the same period last year.

Wednesday's figures are preliminary and may be revised.

The Bank of Korea slashed interest rates to a record low 2 percent to combat the global downturn, but raised the its key borrowing cost to 2.25 percent in July amid a strong growth outlook and worries about inflation. Economists had largely expected another increase this month, but the central bank cited global exchange rate risks as a factor in deciding to keep the rate on hold.