Shock of ferry sinking slows South Korea economy

Associated Press

SEOUL, South Korea (AP) — South Korea's economic growth hit its lowest level in three quarters after a deadly ferry sinking dented consumer spending, the central bank said Thursday.

The Bank of Korea said Asia's fourth-largest economy grew 3.6 percent from a year earlier in the April-June quarter after expanding 3.9 percent in the first quarter.

From the previous quarter, the economy expanded 0.6 percent, the slowest pace in more than a year.

The central bank said even though exports continued solid growth, consumer spending turned negative. Consumer spending fell 0.3 percent, the worst since the third quarter of 2011.

Earlier this month, the bank reduced its forecast for economic growth this year to 3.8 percent from 4.0 percent, citing a deadly ferry sinking in the spring that dented consumption.

The April 16 ferry disaster that killed 294 people and left 10 missing shocked South Koreans and left the country in grief for weeks. Massive cancellations of trips followed the tragedy, hitting food, service and entertainment sectors that serve tourists.

The latest growth data likely boost expectation that the Bank of Korea will cut its key interest rate as soon as next month. The bank has kept its benchmark interest rate at 2.5 percent since May, 2013. One policymaker disagreed with the rate freeze during the bank's July meeting.

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