South Korea Economy Touches New Low

South Korea’s third-quarter growth slipped to its lowest level in more than a year in the first indication of the growing impact of Samsung Galaxy Note 7 recalls on the broader economy.

The Bank of Korea, the central bank, said in a preliminary estimate Tuesday that Asia’s fourth-largest economy expanded 2.7 % during the July-September quarter over a year earlier, the slowest pace since the second quarter of 2015.

The economy grew 0.7 % on a quarterly basis. Quarterly growth has not topped 1% during 2016, ABC News reported.

Manufacturing fell 1% from a year earlier in July-September, compared with a 1.2% gain in the second quarter. That was the biggest drop in more than five years.

The full impact of the recalls of 2.5 million potentially fire-prone Note 7s is likely to be seen in coming months. The premier smartphones were launched in late August and recalled in September. Samsung discontinued the product after finding that replacement phones it was providing customers also were a fire hazard.

Production, exports and consumption of handsets suffered “a big impact” from Samsung’s recalls, Bank of Korea official Lee Kwan-kyo said. He said the exact size of the impact was not clear from the preliminary data.

Hyundai Motor estimated that a wage dispute, now settled, that led to four months of labor unrest had cost the company about 3 trillion wons ($2.6 billion) in lost production. Meanwhile, the bankruptcy of Hanjin, once the country’s largest shipping company, sparked a global logistics logjam and also dented the economy.

However, private consumption edged up 0.5% from the previous quarter and construction investment rose 3.9% amid an enduring building boom.

It remains unclear how long the country can sustain its construction-led growth model. Signs are emerging of housing oversupply while the government tries to curb soaring household debt, which jumped 11% to a historic high of $1.1 trillion at the end of June.

Given South Korea’s reliance on Samsung for exports and investments, the recall is a source of concern for top economic policymakers.

Finance Minister Yoo Il-ho said last week that the government will take measures to ensure that the losses from individual companies do not spread to the broader economy. He said a negative effect was expected on production and exports of handsets and cars, two pillars of South Korean economy, due to the recalls and the strike.