Q1 GDP Hit Lowest in Three Years

With private consumption and facility investment shrinking at a rapid pace, Korea’s economic growth in the first quarter of the year significantly slowed compared to the previous quarter, the Bank of Korea reported Friday.

Though exporting companies enjoyed strong showings in the same period on the back of robust export, the gross domestic income (GDI), an indicator of people’s purchasing power, has slipped into the negative territory due to skyrocketing import prices.

The central bank officially admitted to a possible economic slowdown, saying, “The growth momentum has contracted.” Some raise concerns that an economic growth rate of 4.7 percent, forecast by the BOK, won’t be reached unless the government takes effective measures.

According to the bank’s the quarterly GDP growth report yesterday, the GDP growth in the first quarter increased a mere 0.7 percent compared to the previous three months, the lowest in 39 months.

Last year’s quarterly GDP growth soared from 1.0 percent in the first quarter to 1.7 percent in the second quarter, and high growth rates lasted for three consecutive quarters, recording 1.5 percent in the third quarter and 1.6 percent in the fourth quarter. This growth momentum was halted in the first quarter this year.

However, the on-year growth rate stood at 5.7 percent for the past two quarters in a row. This is because the economic conditions of last year’s first quarter was not good.

Private consumption in the first quarter rose a meager 0.6 percent. Consumption for durable goods such as passenger cars and mobile phones grew. However, the financial sector and restaurants and lodging businesses suffered from people’s dwindling spending due to the bearish stock markets and rapid inflation. Facility investment also plunged 0.1 percent compared to the previous quarter because of sluggish investment in machinery and construction.

On the export front, export of goods decreased 1.1 percent from the previous quarter but compared to the same period a year ago, it rose 12.8 percent, continuing the double-digit growth. “Thanks to some favorable factors, such as the local currency’s depreciation against the dollar, exporters fared well,” said an official of the Bank of Korea.

However, with import costs going through the roof, the purchasing power of the public has dropped. The GDI growth rate, which reflects trading conditions, fell 2.2 percent compared to the previous quarter, hitting the lowest in seven years and three months, since the fourth quarter of 2000 when it dropped 2.4 percent.

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