Nominal GDP contracts for 1st time since Lehman crisis

By Kim Rahn

Korea’s nominal gross domestic product (GDP) decreased 0.4 percent in the second quarter compared with the first, recording the first quarterly decline since the 2008 financial crisis, according to the central bank, Thursday.

The Bank of Korea (BOK) said the GDP at current prices shrank in the April to June period and this was mainly because of the strong won.

The 0.4 percent decline in nominal GDP was the first decline since the fourth quarter of 2008, when it recorded a 2.2 percent drop after the global financial crisis hit the country.

“As the won gained against the dollar, the won-converted GDP lost value,” a BOK official said.

Real GDP, or inflation-adjusted GDP, grew 0.5 percent compared with the previous quarter but showed the lowest level of growth in seven quarters.

The 0.5-percent gain was less than the bank’s initial estimate ― 0.6 percent ― announced in July.

“We’ve reflected new figures which were available after the initial estimate, such as the international balance of payments for June and companies’ second-quarter performance,” BOK director Cho Yong-seung said.

“Net exports were lower than expected, and this was the main cause of the decline from the earlier estimate,” he said.

The BOK said second-quarter exports grew 1.7 percent from a quarter before, down from the initial estimate of 1.9 percent, while imports rose 1.1 percent, up from the first estimate, 0.8 percent.

Investment in construction and facilities also fell short of previous estimates.

Manufacturing increased 0.9 percent with strong exports of chemicals and liquid crystal displays. The services sector grew 0.6 percent despite slumps in the restaurant, accommodation and transportation businesses, because the health care and social welfare businesses expanded.

Private consumption shrank 0.3 percent, to the lowest level in 11 quarters since it recorded minus 0.4 percent in the third quarter of 2011. This decline is believed to reflect the contraction of consumer sentiment following the sinking of the Sewol ferry in April.

The revision of the second-quarter GDP growth forecast pushed the first-half growth estimate down to 3.68 percent from the July estimate, 3.8 percent. The BOK also expected second-half growth to reach 3.8 percent.

Economists expect the central bank to revise its annual growth estimate down further in October.

“The BOK’s estimate was higher than those of the government and private economic research institutes. The economic situation is not as good as the bank’s initial forecasts, and the effects of the Sewol disaster continued longer than expected,” researcher Lee Jun-hyup at the Hyundai Research Institute said.