Korean economy losing vitality

GDP grows 0.6% in third quarter

By Lee Kyung-min

The economy grew 0.6 percent in the third quarter of 2018 from the previous quarter amid sluggish corporate investment and consumer spending, the Bank of Korea (BOK) reported Tuesday.

This sluggish third-quarter growth figure has raised fears that Asia's fourth-largest economy is losing vitality as it has remained below the 1 percent level for two consecutive quarters.

Slow GDP growth is expected to further weigh on the county's economy following the central bank's key 25 basis points interest hike ― to 1.75 percent ― Nov. 30.

The prolonged slowdown has raised doubts about whether the BOK's revised growth outlook of 2.7 percent for 2018 is achievable.

The central bank revised down its growth projection to 2.7 percent for 2018 and 2019, Oct. 18, citing the sluggish consumption, and rising unemployment.

In order to meet the BOK estimate, the country's GDP growth for the fourth quarter should be between 0.84 percent and 1.21 percent, figures the bank deems achievable given the country's brisk chip-reliant export sales.

The BOK remains optimistic.

“Government spending will increase in the fourth quarter following the approval of delayed expenditures by municipal heads elected in the June 13 local elections,” a BOK official said.

“The fourth quarter's figure will improve on the effects of fuel and consumption tax cuts to 3.5 percent from the initial 5 percent for car buyers.”

The central bank said the poor economic performance between July and September was driven by the sluggish investment, which declined for the second consecutive quarter, the first such occurrence since 2008.

Construction investment contracted 6.7 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 stumbled following the 1997 financial crisis.

Facility investment dropped 4.4 percent quarter-on-quarter; it contracted 6.6 percent in the second quarter.

Exports, on the other hand, sustained solid growth on the back of strong sales of semiconductors and IT products.

Overseas shipments in the third quarter rose 3.9 percent from three months earlier, while imports edged down 0.1 percent due to a drop in machinery and transportation equipment purchases.

Private consumption inched up 0.5 percent, an improvement from the previous quarter's 0.3 percent rise, as government spending advanced 1.5 percent.

Experts reiterated that lawmakers and policymakers should come up with fundamental solutions to provide a long-term boost for the economy.

“Reduced corporate investment is hurting the economic conditions, which have been taking a turn for the worse amid side effects of the income-led growth policy defined by the rapid increases in the minimum wage and shorter working hours,” said Sung Tae-yoon, an economist at Yonsei University.

“Businesses are further constrained as well indicated by the figures. If the current status continues, the country's economy will further sag with the prospect of robust growth becoming ever elusive.”

The nation's gross national income (GNI) grew 0.7 percent in the July to September period, on a quarter-on-quarter basis, a turnaround from the previous quarter's 1 percent contraction.