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Bank of Korea head office in Seoul/Courtesy of Bank of Korea

National output goes down 0.3% in first quarter

The Korean economy contracted in the first quarter, marking its worst performance since the global financial crisis in the late 2000s, according to Bank of Korea on April 25.

To surprise market watchers, the central bank said that gross domestic product (GDP) declined 0.3 percent during the January-March period of this year compared to the previous quarter.

It is the worst contraction since a 3.3 percent decline in late 2008 when the world suffered from the global financial swoon and the resultant credit crunch.

During the first three months, private consumption expanded by a mere 0.1 percent quarter-on-quarter while construction investment went down by 0.1 percent.

The main culprit behind the economic shocks was facilities investment, which plunged by a whopping 10.8 percent, due to decreases in machinery and transportation equipment.

A Bank of Korea official said that a drop in business investment was far worse than initially expected because of a sharp downturn in the semiconductor sector.

The economy of Korea, home to the world’s two biggest memory chip manufacturers of Samsung Electronics and SK hynix, heavily depends on the chip industry.

The trade conflicts between the world’s two economic powerhouses of the United States and China also weighed on Asia’s fourth-largest economy.

The grim data opted Oxford Economics, a renowned private think-tank, to come up with a negative outlook over the future of Korea Inc. It originally expected that Korea’s economy will grow 2.3 percent.

Given the weak Q1 outturn, we now expect growth in 2019 to be lower than our original forecast of 2.3%,” it said in a statement.

It also projected that the environment for exports remains challenging given the ICT slowdown and soft global growth. It would be bad news for the export-driven Korean economy.

 

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