Q1 Economic Growth Rate Plunges to 3%

It is presumed that the economic growth rate in the first quarter of this year (January to March) declined to 3 percent, for the first time since the fourth quarter of 2001 (October to December).

Interest on savings deposits was 4.29 percent on an annual basis, its lowest ever. Moreover, the current account balance showed a deficit for the first time since the third quarter of 1997 (July to September).

Park Seung, Bank of Korea (BOK) Governor, discussed pending economic and financial issues with 10 other governors about financial issues on April 15.

During the meeting, the BOK said that the economic growth rate fell despite strong exports because consumption and facility investment shrank and industrial activity slowed. This stems from increased geopolitical tension and restraints on household loans.

The economic growth rate increased to 6.8 percent, after soaring to 6.1 percent in the first quarter of last year from 3.5 percent in the same quarter of 2001.

The current account balance was in the red, despite favorable exports, after last December, due to increased imports along with the surge in international oil prices, deficit in Goods Accounts and Service Accounts. The volume of the current account deficit is expected to reach 1.4 billion dollars in the first quarter of this year.

Therefore, it is expected that the Korean economy will maintain, for the time being, a combination of low economic growth, high inflation, and current account deficit.

In March, interest on new savings deposits (excluding deposits and withdrawals of any type as well as financial bonds) dropped to an average of 4.29 percent, from 4.43 percent in February, going below the 4.3 percent level for the first time. Considering 4.5 percent inflation growth since March, actual interest on savings deposits is in the negative.

On the other hand, loan interests increased to 6.42 percent from 6.39 percent in February. In particular, interest on loans to small and medium-sized companies swelled to 6.39 percent from 6.30 percent in February.

Kwu-Jin Lim mhjh22@donga.com