Think tanks see atypically sluggish Q1 growth rate

Traditionally, the first quarter is when the Korean economy rebounds. Not this year, with research institutes forecasting an quarterly GDP growth of less than 2 percent due to domestic and international economic conditions and a lengthy nomination process that has left key economic posts in the new Park Geun-hye administration unfilled.

LG Economic Research Institute and seven other private think tanks and securities firms also cite sluggish domestic consumption and decreasing exports. The average of the eight forecasts was 1.8 percent. The lowest forecast was 1.6 percent by KDB Daewoo Securities.

The Korean economy had such low Q1 growth only in 1998 during the Asian financial crisis and 2009 with the U.S.-triggered global financial crisis. GDP growth fell 3.5 percent in 1998 and 4.2 percent in 2009.

“Given that overall industrial output has turned to a downward trend and exports fell significantly last month, the Q1 growth forecast could be lower than expected,” said Yoo Byung-gyu of Hyundai Research Institute, although he declined to give a specific figure. “Normally, the first quarter has been the time to rebound.”

The country’s industrial activities in January were bad enough to lower the growth forecast. Weak signs of economic recovery were dashed as most indicators of industrial activities fell in the first two months of the year.

Total industrial output, considered crucial to estimating the GDP, slid 0.7 percent since December.

Retail sales, a key indicator of private consumption, fell 2 percent month-on-month in January.

Exports, Korea’s growth engine, dropped 8.6 percent in February from a year earlier after a revised 10.9 percent year-on-year gain in January largely due to the won’s 23 percent appreciation against the Japanese yen in the past six months.

Against this backdrop, the Ministry of Strategy and Finance and other major economy-related government branches are literally in a “vegetative state” without their ministers because of delays in the confirmation process.

“The ministry just wants to show that it is working as usual despite the vacancy of the minister by announcing such policy measures, but they are nothing new,” said an official at the finance ministry.

Confirmation of Hyun Oh-seok as the new finance minister and deputy prime minister by the National Assembly was to have taken place prior to yesterday’s cabinet meeting. That did not happen and the meeting was canceled. Vice finance minister positions also remain vacant.

“It is hard to say the delayed appointment approval of the economy chief has directly affected Q1 economic performance, but the economy will be influenced, for sure, if the current political situation persists for an extended period of time,” Yoo said.

By Song Su-hyun [ssh@joongang.co.kr]