Economic growth slows to 0.4%

The Korean economy grew 0.4 percent in the first quarter, the slowest in nine months, largely due to sluggish exports and contracted consumption over concerns of prolonged low growth.

According to the Bank of Korea on Tuesday, the gross domestic product rose 0.4 percent to 371.8 trillion won for the first three months of this year, compared to the final quarter of 2015.

The quarterly GDP growth remained below 1 percent for the second quarter in a row. The GDP indicator posted 0.4 percent in the second quarter of last year when the economy was hit by the outbreak of the Middle East respiratory syndrome. After that, the government eagerly encouraged consumer spending by throwing large-scale discount events, and the GDP growth inched up to 1.2 percent in the third quarter.

However, since late last year, the economy again slumped due to uncertainties in the global economy and the interest rate hike by the Federal Reserve in December for the first time in nearly seven years.

Major causes of the sluggish growth in the first quarter of 2016 are falls in exports and domestic consumption, the central bank said.

The country’s exports continued to decline for 15 consecutive months as of March. In the first quarter alone, exports of goods and services slid 1.7 percent. Private consumption expenditure dipped 0.3 percent in the first quarter, while government expenditures rose 1.3 percent as the result of frontloading the government budget for the first three months.

As well, facility investment shrank 5.9 percent for the first time in two years, mainly due to the recession in troubled industries like shipbuilding.

“If the investment drops continue, it is highly likely that production might retreat,” said Jeon Seung-cheol, director general of economic statistics at the central bank.

Aware of the weak performance of the first-quarter GDP, the BOK lowered its growth outlook for the year to 2.8 percent, while keeping the benchmark interest rate at 1.5 percent in its April monetary policy committee meeting.

However, the Ministry of Strategy and Finance is sticking to its 3 percent growth goal, repeating that the economy is expected to fare better in the second quarter.

“The ministry will have to decide [whether or not to adjust the growth goal] after seeing indicators for April and May,” said a senior official at the ministry. “At the earliest, we may announce the decision in June.”

According to its monthly report on industrial output, total production grew 0.8 percent in February, showing a slight improvement from previous months. The ministry also pointed out that declines in exports are narrowing.

“Since the indicators for the real economy have been improving lately, we predict a better situation in the second quarter,” he added.

However, the ongoing industrial restructuring led by the government might have a significant impact on the recent recovery trend, experts say.

“Such restructuring can affect employment, and employment would affect consumption, which might exert influence on the GDP growth in the long run,” said Hong Jun-pyo, an economist at Hyundai Research Institute.

BY SONG SU-HYUN [song.suhyun@joongang.co.kr]