Koreas GNI drops for first time in 2 years

By Kim Tong-hyung

Korea’s gross national income (GNI) posted its first quarterly drop in two years as stagnant wages and soaring inflation continue to squeeze the purchasing power of Korean consumers.

GNI, a commonly used indicator for a population’s purchasing power, measures total income generated domestically and brought in from abroad after deducting what foreigners earned here and remitted overseas.

According to the Bank of Korea (BOK), the country’s GNI declined 0.1 percent in the Jan.-March period from the preceding quarter, the first quarterly contraction since a 0.2- percent drop in the first quarter of 2009.

The central bank’s report sparked fears that the air is beginning to escape from the country’s economic recovery.

Korea’s inflation-adjusted gross domestic product (GDP) grew by 1.3 percent during the first quarter from three months earlier, lower than the bank’s previous estimate of a 1.4 percent expansion, with sluggish consumption and investment-offsetting robust exports. The number did represent a 4.2 percent increase year-on-year, remaining unchanged from an earlier estimate.

The figures were announced two days before the BOK’s rate-setters hold their monthly meeting to determine the country’s benchmark rate. They kept the rate on hold at 3 percent in May despite soaring inflation, as higher prices have been coupled with subdued economic activity. Inflation has been at least a point above the government’s 3 percent target for every month this year through May.

“Deteriorated trade terms caused by higher cost of fuel explains the drop in GNI figures,” the central bank said.

Exports, which account for about 50 percent of the country’s GDP, increased 4.6 percent during the first quarter from the preceding one, improving from the bank’s earlier projection of a 3.3 percent gain. Consumption rose 0.4 percent during the period, down from the bank’s advanced estimate of a 0.5 percent increase.

Investment in facilities dropped more than expected at 1.1 percent during the first quarter.

The overall growth in the GDP was attributed to a 3.1-percent expansion in the manufacturing sector thanks to growths in metal, technology and transportation products and equipment, the BOK said.

However, the construction sector, reeling from exposure to the country’s toxic property market, contracted by 6.1 percent. Production in agricultural and fisheries dropped by 4.5 percent quarter-on-quarter, representing the steepest decline since the first quarter of 1999.

The government has set growth of 5 percent on 3-percent inflation as its economic goals for the year, but the target has been looking increasingly suspicious as consumer prices continue to lose their sense of gravity.

The Korea Development Institute (KDI), a state-run think tank, raised its 2011 inflation outlook for Korea to 4.1 percent from its previous 3.2-percent estimate, calling for the BOK to actively lift its key rate, given the growing inflation risks.