By Kim Tong-hyung
Confidence in the Korean economy suffered a fresh blow Thursday after official figures confirmed growth has deteriorated over the past six months.
The economy expanded at a meager 3.4 percent annual rate in the third quarter, according to the Bank of Korea’s (BOK) latest gross domestic product (GDP) measurement. This was the slowest pace in nearly two years as the country continues to be battered by the eurozone debt problems and crippling inflation.
GDP growth in the second quarter had been at the same 3.4 percent, the weakest since the 1 percent expansion during the third quarter of 2009.
The sharp pull-back in economic activity underlines the fragility of the recovery in a pre-election year, as exports, investment and consumption continue to tumble and extend the slew of bad data. The 3.7 percent expansion in the first nine months of the year suggests that the central bank’s target for an annual 4.3 percent growth is now officially in the bin.
Quarter-on-quarter, the economy grew at 0.7 percent from the April-June period, the lowest level in three quarters.
“The heavy torrential rain during July bit into the agricultural, fisheries and tourism sectors. And with the European financial problems emerging, growth in the third quarter was weaker than expected,” said Kim Young-bae, who heads the BOK’s economic statistics division.
“Mathematically, it has become clearly difficult for us to meet our annual growth target.”
Slowing economic activity has been coupled with soaring inflation, driven by higher food and fuel prices, which continue to erode living standards here and has policymakers stuck in a quandary between growth and price stability. Consumer prices jumped by 4.3 percent in September from a year earlier, slowing from a three-year-high of 5.3 percent in August, but still representing the ninth-consecutive month of above-target inflation.
Exports grew 2 percent in the three months to September and 9.4 percent year-on-year, slightly dipping from the 9.6 percent annual increase shown during the second quarter. Consumption grew by 0.7 percent from the previous quarter on increased spending on mobile-phones, cars and fuel. Corporate investment in facilities decreased by 0.4 percent from the second quarter, while construction investment increased by 2.2 percent.
Production in agriculture, forestry and fishing declined by 6.1 percent from the previous quarter, due to heavy rain decimating crops and fish catches.
Manufacturing production increased by 1.3 percent, while services grew by 0.3 percent as the gains in finance, insurance and communications offset the decline in real estate and rents.
“The heightened uncertainty over the world economy has companies postponing their investment in facilities, and although construction investment has rebounded to positive figures, the growth wasn’t as good as expected due to the abnormally rainy summer,” Kim said.
“Consumption continues to be affected by the inflation and the historically high levels of rain. The recent stock market woes didn’t help either.”
BOK Governor Kim Choong-soo admitted earlier this month that the chances for the country to meet its 4.3 percent growth target for 2011 were remote.
He also cut the growth outlook for next year, adding that the local economy may grow in the low 4 percent range, down from the earlier estimate of 4.6 percent.