S. Korean economic growth slows to 3-year low in 2012

By 박한나
  • Published : Mar 26, 2013 - 09:07
  • Updated : Mar 26, 2013 - 10:26
The South Korean economy grew at the slowest clip in three years in 2012 as exports, facility investment and private spending remained weak amid the global economic slowdown, the central bank said Tuesday.

The country's gross domestic product, the broadest measure of economic performance, grew 2 percent in 2012, unchanged from its earlier projection made in January, according to the Bank of Korea (BOK).

The 2012 growth marked the slowest increase in three years. But the 2011 growth was revised up to 3.7 percent from an earlier estimate of 3.6 percent.

The quarterly growth numbers were all revised down, except for the second quarter reading. Asia's fourth-largest economy grew 0.3 percent on-quarter in the fourth quarter, after posting no growth in the preceding quarter.

The growth data underscores economic headwinds facing South Korea, which is suffering from sluggish domestic demand and weak exports amid the global economic slowdown. The BOK's 2013 growth estimate stood at 2.8 percent.

"Lackluster consumer spending and facility investment caused the economic growth to slow down last year," Jung Young-taek, the director of the BOK's national accounts division, told reporters.

Jung said that the three-year low for the gross investment rate means that economic uncertainty prompted more firms to refrain from spending on capital investment.

The GDP data comes at a delicate time, when there are mixed outlooks over whether the BOK will cut the key interest rate to 2.5 percent in April. The bank froze the benchmark rate at 2.75 percent for the fifth straight month in March after cutting it in July and October of last year.

New Finance Minister Hyun Oh-seok and BOK Gov. Kim Choong-soo recently made slightly different assessments of economic conditions.

The government is poised to unveil a package of stimulus measures, which may include 10 trillion won in extra budget plans, in a bid to prop up growth. The minister stressed the importance of a policy mix, saying that the local economy is in "serious" condition.

Gov. Kim also emphasized establishing harmony between fiscal and monetary policies, but his assessment of economic activities is slightly brighter than that of the finance minister. The governor even expressed concerns about a long streak of low rates, spawning speculation that a rate cut may not be in the cards.

Exports, which account for about 50 percent of the economy, grew 4.2 percent in 2012, slowing from a 9.1 percent gain in the previous year. The 2012 reading marked the weakest gain since 2009 when Korea was in the midst of the 2008 global financial crisis.

The yen's weakness is feared to sap Seoul's exports as prices of Korean goods become more expensive in overseas markets, compared with Japanese rivals.

Private spending, rose 1.7 percent last year after growing 2.4 percent in 2011 as high household debt crimped consumers' spending.

Facility investment contracted 1.9 percent in 2012 after growing a revised 3.6 percent in the previous year. The 2012 data was the worst performance since 2009.

Meanwhile, the gross national income (GNI), a gauge of purchasing power of the population, rose 2.6 percent on-year in 2012 as import costs fell at a sharper pace than export prices, improving trade terms, the BOK said. It marked the first time since 2009 that the growth rate of the GNI surpassed that of the GDP.

Korea's per capita GNI stood at US$22,708 last year, up from $22,451 in 2011.

Korea's gross savings rate came in at 30.9 percent in 2012, down from 31.6 percent tallied for 2011 and the lowest in three years, it said.

Income growth remains stagnant amid the economic slowdown while low borrowing costs and high household debt are reducing individuals' room to save, experts say.

The country's falling savings rate is a cause for concern as a decline in individual savings could erode local firms' leeway to borrow for their facility investment, hurting economic growth. (Yonhap News)