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Downward pressure on South Korea's economic growth has increased

Dec 19, 2018

South Korea's GDP grew 2% in the third quarter from a year earlier, the slowest pace in nine years and worse than market expectations.

The analysis points out that the investment contraction is the leading factor causing the deterioration of South Korea's economic growth this year.

In addition, the rise of international trade protectionism, the insufficient driving force of domestic demand for economic growth and the widening gap between the benchmark interest rates of the rok and the us have also adversely affected the rok economy.


Recently, South Korea released the GDP data for the third quarter of this year.

South Korea's gross domestic product grew 2% in the third quarter from a year earlier, the slowest pace in nine years and worse than market expectations, the data showed.

This follows repeated downgrades of South Korea's economic growth forecasts for this year.

At the beginning of the year, the Korean industry was generally optimistic about the outlook for this year's economic development. In April, the bank of Korea set its annual economic growth forecast at 3%.

But the bank of Korea cut its forecast to 2.9 per cent in July, citing disappointing developments.

In October, the imf cut again to 2.8%, followed by the bank of Korea's second cut this year, to 2.7%.


In the five years from 2013 to 2017, South Korea's economy grew 2.9 percent, 3.3 percent, 2.8 percent, 2.9 percent and 3.1 percent, respectively.

If growth is 2.7 per cent this year, it would be the slowest in almost six years.

Among them, the increase in downward pressure on the economy this year is directly reflected in the employment data.

Compared with the same period last year, South Korea's employment growth in each month this year showed a "cliff" decline.

South Korea added 334,000 jobs in January from a year earlier.

By march, that had fallen sharply to an increase of 112,000 from a year earlier.

In July, it fell to just 5,000 from a year earlier, close to a plateau.


Some domestic analysts pointed out that the shrinking domestic investment is an important reason for the increasing downward pressure on South Korea's economic growth.

At the beginning of the year, investment in equipment in South Korea was ok, with year-on-year growth of 11.9 per cent in January and 19.3 per cent in February.

But in March, growth was just 0.1 per cent from a year earlier.

Since may, South Korea's equipment investment has been in a negative state in each month compared with the same period last year.

South Korea's Banks also cut their full-year growth forecast for equipment investment to 0.3 percent from 1.2 percent.

In addition, South Korea's construction investment in each month this year also basically showed negative growth.

South Korea's national business daily reported that shrinking investment was a leading factor in the deterioration of the country's economic growth this year.


At the same time, international trade protectionism also restricts South Korea's economic development.

On the one hand, South Korea's economic development is very dependent on exports.

Semi-finished products or components such as semiconductors account for a large proportion of exports.

International trade protectionism has exerted a restraining effect on the production demand of multinational enterprises, which is not conducive to the export of South Korea.

On the other hand, trade frictions between South Korea and the United States have continued this year.

The United States has attempted to narrow the trade deficit with the rok by putting pressure on the rok. The two countries have engaged in many "offensive and defensive wars" over the export of Korean cars, steel, household appliances and other products to the us as well as the korea-us free trade agreement, which have adversely affected the rok companies.

Against this backdrop, south Korean exports in September were not ideal.

Of South Korea's 13 main export categories, 10 saw year-on-year export declines.

Among them, ships, steel, automobiles and display screens saw the largest reduction, with year-on-year decreases of 55.5%, 43.7%, 22.4% and 12.1%, respectively.


In addition, the insufficient driving force of domestic demand for economic growth and the widening gap between benchmark interest rates between the rok and the us have also adversely affected the rok economy.

Since last year, South Korea has promoted the concept of "income growth driving economic development" as a new engine of economic development, that is, increasing national income to drive domestic demand, so as to drive economic development with domestic demand growth.

However, judging from the contribution rate of domestic demand to South Korea's economic growth in the near future, domestic demand has not yet become a powerful economic growth engine.

At the same time, in terms of the benchmark interest rate, South Korea has kept the benchmark interest rate unchanged this year. Therefore, when the federal reserve raised interest rates for several times, the gap between the benchmark interest rate of South Korea and the United States became wider and wider, which led to the withdrawal of some foreign capital from South Korea.


In view of the current situation, the south Korean government is also actively studying countermeasures.

South Korea's vice premier of economy and minister of planning and finance Kim dong yansaid recently that his country would take measures in three aspects, including enhancing economic vitality and increasing employment by stimulating investment, innovating new economic growth and regulation innovation, and creating targeted jobs according to different regions and industries.

In addition, the measures that South Korea plans to give priority to in the next stage will include: package measures in tax, finance, laws and regulations to stimulate economic growth;

To promote industrial structure, encourage the development of competitive industries, reform and improve relevant laws and regulations;

We will further raise the income level of the middle class and low - and middle-income groups, while reducing the burden on businesses and people, so as to further implement the strategy of "income growth driving economic development".