4th-quarter GDP drops 3.4 percent from 2007 level

In the last quarter of 2008, the Korean economy shrank 3.4 percent from a year earlier, the largest retreat since the first quarter of 1998.

Compared with the third quarter, the fourth-quarter gross domestic product dipped 5.6 percent, the Bank of Korea said yesterday.

While it had been widely speculated that the fourth quarter would show negative growth, the quarter-to-quarter decline was a much larger drop than the 1.6 percent decline that the central bank had predicted only a month ago.

“Import demand from the United States and the Euro-region shrank abruptly. Korea’s fourth-quarter exports, which dropped by 11.9 percent from the previous quarter, had the biggest impact on lowering the GDP,” said Choi Chun-sin, head of the central bank’s economic statistics bureau.

The on-quarter decline in exports is the worst since statistics were first compiled in 1970.

The plunge was mainly due to sluggish demand for Korea’s key export items - semiconductors and wireless telecommunication equipment.

And the bad news was not limited to exports.

Private spending contracted by 4.8 percent on-quarter, versus a 0.1 percent gain in the preceding three months, and facility investment plunged 16.1 percent quarter to quarter.

Gross national income, a key measure of real purchasing power, dropped 2.1 percent from a year earlier in the fourth quarter.

Choi said there is a high chance that per capita national income fell below $20,000 last year because of the sharp decline of the won versus the dollar.

Choi also said the country saw an annual GDP growth of 2.5 percent last year, falling short of the central bank’s forecast of 3.7 percent.

The growth was half the reading for 2007 and is the lowest yearly figure since 1998.

“Negative economic growth is inevitable in the first half of this year, given that the economy is rapidly deteriorating,” he said. Accordingly, GDP for the whole year could be lower than the central bank’s earlier forecast of 2 percent, he added.

The GDP announcement by the central bank came a day after the Korea Development Institute, a state-run think tank, readjusted its outlook for Korea’s 2009 growth to 0.7 percent, down from 3.3 percent that it had projected last November.

Influenced by an announcement from the BOK, European investment bank Credit Suisse yesterday lowered its 2009 growth forecast for the Korean economy from minus 0.3 percent to minus 1.5 percent.

On the same day BNP Paribas, a French bank, dropped its projection from minus 2.4 percent to minus 4.5 percent.

Meanwhile, neighboring China’s economic growth slumped to 9 percent last year, its government reported yesterday. It is China’s slowest growth rate in seven years.

In the last three months of last year, Chinese growth stood at 6.8 percent, down from 10.6 percent in the first quarter.

Shin Yong-sang, head of macroeconomic research at the Korea Institute of Finance, stressed the role of the government in addressing the declining GDP. “The private sector has no room for additional investment. The government should boldly execute its fiscal spending to create more jobs,” he said.

By Seo Ji-eun Staff Reporter [spring@joongang.co.kr]

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4th-quarter GDP drops 3.4 percent from 2007 level

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