Home > knowledge > Content

Downward pressure on South Korea's growth

Nov 22, 2018

South Korea's gross domestic product rose 2 percent year on year in the third quarter, the slowest pace in nine years and below market expectations.

The analysis pointed out that the shrinking investment is the main factor causing the deterioration of economic growth in South Korea this year.

In addition, the rise of international trade protectionism, the lack of domestic demand for economic growth and the widening of the benchmark interest rate gap between the two countries have also adversely affected the south Korean economy.


South Korea recently released third-quarter GDP data.

The data showed that South Korea's GDP grew 2 percent year-on-year in the third quarter, the slowest pace in nine years and below market expectations.

Earlier, South Korea has repeatedly lowered its growth forecast for this year.

At the start of the year, there was widespread optimism about the outlook for the economy this year, with the bank of Korea forecasting growth of 3 per cent for the full year in April.

In July, however, the bank lowered its forecast to 2.9%, because of disappointing growth.

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 by 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.

The increasing downward pressure on the economy this year is directly reflected in the employment data.

Compared to the same period last year, South Korea's monthly job gains have fallen off a cliff.

South Korea's employment rose by 334,000 in January from a year earlier.

By march, it had plunged by 112, 000 from a year earlier.

In July it was down to a mere 5,000, close to a standstill.


Domestic analysis points out that the contraction of domestic investment is an important reason for the increasing downward pressure on South Korea's economic growth.

At the beginning of this year, south Korean equipment investment was in good shape, with year-on-year growth of 11.9 per cent in January and 19.3 per cent in February.

But by march, it was up just 0.1%.

From may till now, south Korean equipment investment in each month was negative compared to the same period last year.

The bank also changed its forecast for full-year equipment investment growth to a 0.3 per cent contraction from a 1.2 per cent rise.

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

South Korea's daily economy reported that shrinking investment was the main factor behind the worsening economic growth in the country this year.


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

For one thing, South Korea relies heavily on exports for its economic development.

Semi-finished goods, such as semiconductors, or parts, account for a large proportion of exports.

International trade protectionism has a dampening 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 been frequent so far this year.

The United States attempts to narrow the trade deficit with South Korea by putting pressure on South Korea. The two countries have engaged in a series of "war and defense" on the export of south Korean automobile, steel, household appliances and other products to the United States and the free trade agreement between the two countries.

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

Of South Korea's 13 major categories of exports, 10 have seen a year-on-year decline in exports.

Among them, ship, steel, automobile and display screen saw the largest reduction, 55.5%, 43.7%, 22.4% and 12.1% year-on-year respectively.


In addition, the lack of domestic demand for economic growth and the widening of the benchmark interest rate gap between South Korea and the United States also have a negative impact on the south Korean economy.

Since last year, South Korea has promoted "income growth driving economic development" as a new engine of economic development, namely, promoting domestic demand through improving national income, thus promoting economic development with the growth of domestic demand.

Then, judging from the recent contribution of domestic demand to South Korea's economic growth, domestic demand has not yet become a strong engine of economic growth.

Meanwhile, in terms of benchmark interest rates, South Korea has kept the benchmark interest rate unchanged this year, so the gap between the two countries' benchmark interest rates has widened after several fed hikes, resulting in the withdrawal of some foreign capital from South Korea.


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

Kim dong yan, deputy prime minister and finance minister, said in a recent public statement that South Korea will take measures in three aspects, including boosting economic vitality and employment by stimulating investment, transforming new economic growth and regulatory reform, and creating targeted jobs for different regions and industries.

In addition, South Korea's next priority measures will include a package of measures in tax, finance, laws and regulations to stimulate economic growth.

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

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