South Korea’s economic growth weakened in the final three months of last year as a fall in automobile exports overpowered an increase in shipments of semiconductors. Fewer work days also added to the contraction. That slowdown came after gross domestic product expanded in the third quarter at the best pace in more than seven years.
Key Points
- Gross domestic product contracted 0.2 percent in the three months through December from the previous quarter, when it grew 1.5 percent, the Bank of Korea said on Thursday.
- That drop is the worst result since the final quarter of 2008, when it contracted 3.3 percent.
- The median estimate of economists surveyed by Bloomberg was for 0.1 percent growth.
- From a year earlier, economy expanded 3 percent, missing economists estimates of 3.4 percent growth.
Even with this surprise contraction, the economy has been benefiting from the prolonged growth in the value of exports of things like semiconductors and electronics, with the total value of all shipments hitting a record in 2017. Reflecting that, the Bank of Korea expects the economy to grow 3 percent this year, and was confident enough about its progress to raise the policy interest rate in November last year, the first increase since 2011.
President Moon Jae-in was elected last year on a platform of increasing jobs and incomes, especially for the poor, in an attempt to increase domestic consumption. Private consumption rose 1 percent in today’s data, slightly up from the previous period.
- “Just looking at the fourth quarter data may be misleading,” said Chung Kyu Il, the director general of the economic statistics department at the Bank of Korea. In the second half of 2017 the economy expanded by 3.4% and this indicates Korea’s steady economic growth, he said.
- A long holiday at the start of October and base effects coming from strong 3Q GDP results is behind the contraction, said Chung, speaking at a briefing following the data release.
Economist Takeaways
- Korea’s economic recovery shouldn’t be seen as coming to an end just because of the 4Q GDP results, said Park Jeong-woo, an economist at Korea Investment and Securities.
- Private consumption is up along with growth in wages, which is positive, said Park.
- Exports weakened in 4Q, but that’s “likely because of the long holiday in October and a slump in sectors including automobiles and ships,” Park said.
Details
- Exports measured by volume declined 5.4 percent in the fourth quarter from the previous three months, according to the BOK.
- Government spending increased 0.5 percent from the third quarter, while private consumption gained 1 percent.
- Construction investment was down 3.8 percent with facilities investment falling 0.6 percent.
