By REUTERS
South Korea’s economic growth slowed by more than half in the fourth quarter (4Q) from 3Q of 2015, prompting the government to press ministers to spend their budget allocations in a timely manner to keep recovery momentum alive.
4Q gross domestic product (GDP) rose 0.6% in seasonally adjusted terms from the third quarter, the Bank of Korea said on Tuesday, slowing from a 1.3% rise in the September quarter of last year, slightly lagging forecasts.
Construction investment dragged down quarterly growth, although private consumption was a bright spot in the October-December period.
“There are doubts as to whether the surge in consumption seen late last year will spill over to this year, while the weakness in construction investment will have likely carried over into 2016,” said Kim Doo-un, an economist at Hana Financial Investment.
Demand for services and durable goods drove up private consumption by a seasonally adjusted 1.5% in the 4Q, following 1.2% growth in the previous quarter to post the best quarterly rise since the December quarter of 2009.
This surge was due largely due to the government getting retailers to participate in nationwide discount sales in late 2015, the effects of which may taper off quickly, some analysts said.
Meanwhile, central bank data showed construction investment dropped 6.1% in October-December from the previous quarter in the biggest decline in a year, dragged down by a lack of building projects, low government spending and a soft slowdown in real estate transactions.
For the full year, South Korea’s GDP rose 2.6%, compared to a rise of 3.3% in 2014, posting its slowest gain since 2012, mainly on poor exports and agriculture.
Call for timely frontloading
From a year earlier, the economy expanded 3% in the December quarter, the fastest annual growth since the third quarter of 2014.
To fight possible economic weakness early in 2016, Finance Minister Yoo Il-ho urged other ministers to act quickly in frontloading budget spending in the first quarter.
The government usually frontloads its annual budget to prop up activity.
Despite the rocky recovery, the Bank of Korea has few cards it can play to boost growth, given increasing household debt and inflation that is slowly on the rise.
Kim said in order to manage market expectations the central bank was likely to continue sending verbal signals on rates and inflation.
The central bank has said the economy is recovering steadily due to strong consumption, while it has grown more hawkish on interest rates, emphasising the importance of long-term structural reform for South Korea’s economy.
The Bank of Korea’s base rate is currently at 1.50%, a level a majority of market participants believe will be kept unchanged for a prolonged period.
— By Christine Kim
You must be logged in to post a comment.