GDP grew an anemic 3.6% last year

The dark clouds looming over Korea’s economy have started to pour as GDP growth in 2011 was sharply down.

According to the Bank of Korea, the Korean economy grew 3.6 percent in 2011, nearly half the 6.2 percent growth posted in 2010.

The slower growth was attributed to a significant drop in corporate and private spending caused by fears of the unresolved debt crisis in Europe.

Even exports, the driving force behind economic growth since the global financial meltdown in late 2008, posted the lowest quarter-to-quarter growth since the third quarter of 2009.

Growth in the fourth quarter over the third was 0.4 percent, half of the growth in the third quarter.

“The fourth quarter performance was much lower than we expected,” said Kim Young-bae, head of the economic statistics department at the central bank.

“Companies and households reacted hypersensitively to the sovereign debt crisis in Europe in the fourth quarter,” Kim said.

“As confidence fell, so did investment in facilities and plants as well as private expenditures.”

Kim noted that investment and consumption will likely improve as the debt crisis in Europe seems to be coming to a resolution.

Last year’s growth was far lower than the central bank’s revised projection of 4.3 percent and the Ministry of Strategy and Finance’s 4.5 percent. It was even lower than the state-run Korea Development Institute’s more conservative outlook of 3.8 percent.

Private expenditure in the fourth quarter contracted for the first time in nearly three years. It posted minus 0.4 percent growth.

Annually it grew 2.2 percent, but that was nearly half the 4.1 percent expansion in 2010.

Additionally, companies’ investment in plants and facilities slowed alarmingly, growing only 3.8 percent annually, compared to the 25 percent hike in 2010.

The biggest worry is slowing exports, which account for half the nation’s gross domestic product. The central bank’s report made it evident that last year’s export growth was plummeting, especially in the final quarter.

Exports grew 10 percent last year, which was less than the 14.5 percent posted in 2010. And although exports showed an annual growth of 5.2 percent in the last three months, that was the lowest since the third quarter of 2009. By quarterly growth, exports posted the first negative growth of 1.5 percent since the third quarter of 2009.

The Korean government and policy makers have been stressing the need to boost the domestic market to cushion the blow from uncertainties abroad. The government recently announced plans to spend 60 percent of the annual budget in the first half of this year to stimulate domestic demand.

But with high inflation and household debt levels, the domestic market has shown little signs of taking off.

The first quarter is expected to be pretty much the same as the final quarter of 2011.

The International Monetary Fund has lowered its estimate of this year’s global economic growth. The growth of emerging markets, although better than Europe’s, was lowered, including China’s, an economic engine of the past decade.

U.S. Federal Reserve Chairman Ben Bernanke said in Washington the U.S. will keep its key interest rate at its current low level until 2014, citing a weak global economy.

“There’s no denying it,” said Ronald Man, an HSBC economist. “GDP figures from the final quarter of 2011 confirm that weakness is now embedded inside Korea’s economy. While this is far from a hard-landing scenario, it is becoming clear that the economy will need a healthy boost, especially with no signs of a rebound anytime soon.”

By Lee Ho-jeong [ojlee82@joongang.co.kr]