South Korea’s growth rate retreated from a five-year high as a surge in property transactions that supported the economy earlier last year fizzled out.
GDP rose 0.6 percent in the fourth quarter from the previous three months, when it jumped by 1.3 percent as shoppers went back into stores following an outbreak of Middle East respiratory syndrome (MERS), according to data released by the Bank of Korea (BOK) yesterday. The economy expanded 2.6 percent last year from a year earlier, the slowest pace since 2012.
Tepid growth underscores the difficulties policymakers face relying on domestic demand to shore up growth as China’s slowdown and global uncertainties hit export industries.
Photo: AFP
While the central bank and the government both project that the economy is to expand at least 3 percent this year, economists surveyed by Bloomberg estimate just 2.8 percent.
“The economy in 2015 was supported by government policies to boost domestic demand through consumption and the property market, while exports played a negative role,” HI Investment & Securities Co Seoul-based economist Park Sang-hyun said. “I expect GDP growth in 2016 to be at 2.6 percent as domestic demand can lose its momentum on sustaining growth.”
Construction investment fell 6.1 percent during the fourth quarter of last year from the previous quarter, according to yesterday’s data. Private consumption expanded at 1.5 percent and government spending was up 1.2 percent, while exports rose 2.1 percent by volume.
While housing transactions surged to a record 1.19 million units last year, supported by low borrowing costs, the pace slowed in the fourth quarter.
Transactions fell 10 percent in December last year from the previous month, data from the South Korean Ministry of Land, Infrastructure and Transport showed.
The housing market is being affected by tighter lending rules designed to curb debt growth. Construction also was hurt as state-run organizations, which used up most of their budgets on building infrastructure earlier last year, cut back on investment.
“Property transactions fell in the fourth quarter due to base effects from a surge in the first three quarters of 2015, and the government’s infrastructure investment also slowed,” BOK Director-General Jeon Seung-cheol said at a news conference. “Consumption in the fourth quarter was supported by government agendas including retail promotions and tax breaks.”
Exports were the weakest point for the economy last year. They shrunk 7.9 percent in value terms from the previous year as lower oil prices cut the value of related products, the global economy slowed, and a change in China’s economic structure reduced demand for Korean components and intermediate goods.
Overseas sales for the first 20 days of this month fell 8.9 percent from a year earlier, data from the Korea Customs Service showed, poised for a 13th monthly decline.
China is South Korea’s biggest trading partner and accounts for one-quarter of its exports. Shipments to China dropped 5.6 percent last year.
Net exports stripped 1.2 percentage points from last year’s GDP growth, while domestic demand including private consumption and construction added 3.7 percent, the BOK’s statement showed.
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