Economic Growth of South Korea Dropped in 4th Quarter Due to Low Exports

The economy of South Korea surprisingly declined in the previous quarter as it faced problems on car exporters and industrial production and was unsuccessful to maintain the upbeat trend in the previous quarter. This has been the worst recorded data since 2008.

Even during the 10-day Chuseok autumn holiday in October, the fourth quarter industrial output was affected along with the dropped in car exports and canceled out gains during the high demand for offshore sales of computer chips.

Automobile manufacturers, Hyundai Motor and its Kia Motors affiliate, reported that shipment of a million vehicles in December 2017 has not reached the 8.25 million target as it strived against competitors and trade issue concerns.

The Gross domestic product of the country dropped by 0.2 percent, a seasonally adjusted figure, in the fourth quarter, according to the data released by the Bank of Korea.  It dropped following an increase of 1.5 percent in the third quarter, which has been the fastest growth in seven years.

This would have a repercussion following a strong growth in the third quarter, including irregular factors such as the Chuseok holiday as this has reduced the number of business working days, as stated by the director general of the bank’s Economic Statistics Department, Chung Kyu-il, during the news conference.

There was a broad agreement regarding the tightening of the central bank’s monetary policies assented to be implemented in a gradual manner amid a moderate growth of the export- and investment-led sector and after the rapid expansion last year.

The reduction in the fourth quarter of 2017 has undermined the 0.1 percent progress by economists that made it the worst quarterly performance, since the contraction of 3.3 percent in the fourth quarter of 2008.

Exports declined by 5.4 percent in the fourth quarter, following an increase of 6.1 percent in the previous quarter while private consumption rose to 1.0 percent from 0.8 percent, according to the central bank.

Overall, the economic progress by 3.0 percent than last year but slower than the 3.8 percent growth in the September quarter.

Moreover, Chung also noted that half-year basis from July demonstrated a quicker growth compared to the first half of 2017, reflecting an overall pace of development.

An economist at KB Investment & Securities, Moon Jung-hui, said that domestic demand will be able to neutralize the slow growth of exports this year. He also commented that the sudden surge of investments last year may not be sustained this year and slow down. On the bright side, the private consumption is progressing quite good which will support growth this year.

Investment in the Construction sector declined to 3.8 percent than the previous quarter, after the government adjusted the mortgage rates higher to hinder excessive borrowing of multiple homeowners.

The central bank is observing the implications of the November hike, which is the first tightening in six years that becomes a concern in unsettling capital flows. They maintained the policy rate at 1.50 percent on January 18 but augmented the 2018 growth forecast of three percent, which is a bit higher than the previously predicted figure of 2.9 in October last year. The consumer inflation adjusted lower the inflation forecast of 1.7 percent from 1.8 percent that follows the outlook of analysts in having an accommodative stance this year.