Value context and insight. lkm@koreatimes.co.kr
Economy grows 0.6 percent in Q3
Park Yang-su, economic statistics department director general at the Bank of Korea (BOK) speaks at a press briefing at the BOK, Thursday. Yonhap
By Lee Kyung-min
Construction investment falls 6.4%, biggest drop since 1998
By Lee Kyung-min
Korea is showing clear signs of losing growth momentum, with its gross domestic product (GDP) growing only 0.6 percent in the third quarter from the previous quarter due to sagging facility and construction investment.
The sluggish third-quarter growth figure, released by the Bank of Korea (BOK), Thursday, is expected to be a further headache for the central bank, which is under mounting pressure to increase its key rate following a series of hikes by the U.S. Federal Reserve.
In the second quarter, Asia's fourth-largest economy also grew 0.6 percent after marking 1 percent in the first.
The central bank said the poor economic performance between July and September was driven by the sluggish investment.
Construction investment contracted 6.4 percent in the three months from the second quarter, the biggest drop in 20 years since the April-June period of 1998, a year after Korea's economy tumbled following the 1997 financial crisis.
Corporate investment dropped 4.7 percent quarter-on-quarter, the second consecutive decline. It contracted 6.6 percent in the second quarter.
On the other hand, exports sustained solid growth on the back of strong sales of semiconductors and IT products.
External shipments in the third quarter rose 3.9 percent from three months earlier, but imports edged down 0.1 percent due to a drop in machinery and transportation equipment purchases.
Private consumption also remains in positive territory, inching up 0.6 percent, an improvement from the previous quarter's 0.3 percent rise.
The central bank said the economy is undergoing a correction period whereby a reduction in investment occurs in previously expanding sectors.
“Construction and facility investment over the past few years have been brisk, and the recent decrease signals adjustments,” said Park Yang-su, BOK Economic Statistics Department director general at a press briefing.
The bleaker-than-expected third-quarter growth rate has raised doubts about whether the BOK's revised growth outlook of 2.7 percent for 2018 is achievable.
Reflecting worsening job data and investment, the central bank cut its 2018 forecast to 2.7 percent from 2.9 percent, Oct. 18.
In order to meet the BOK estimate, the country's growth rate for the fourth quarter should be at least 0.82 percent, according to the bank.
However, it dismissed concerns, saying the rate is well within the earlier forecast range for annual growth.
Gloomier outlook
“We consider 0.6 percent in quarterly growth as still in line with annual 2.8-2.9 percent annual range of growth of the country,” Park said.
“Given the potential growth rate in 2009 was around 3.8 percent, it is a bit of a stretch to characterize the 2 percent growth over the past three quarters as a shocking figure,” he added.
Park also downplayed the impact of the ongoing trade dispute between the U.S. and China, adding the pressure has yet to be felt.
“The trade tension is a concern but has had a limited impact on the economy as of now, backed by the country's strong chip-reliant export sales. But we will monitor developments closely.”
Experts said that policymakers should take the situation more seriously and come up with fundamental solutions to provide a long-term boost for the economy.
“Economic conditions are taking a turn for the worse, primarily due to reduced investment,” said Sung Tae-yoon, an economist at Yonsei University.
“Corporate investment in facilities and the construction sector is on steady decline, further compounded by the rapid pace of minimum wage hikes in recent years, all of which are only constraining businesses.”
If the current status continues, the country's economy will further sag with the prospect of robust growth becoming ever elusive.
“The recent government measures to create temporary jobs and increase investment may create what is widely known as a statistical illusion,” Sung said.
“Government spending will of course make the employment numbers go up in the short term, but that will fall short of providing enough of a boost to the economy. Today's figures are only a part of many signs that the country's economy is losing growth momentum.”