Growth Rate Expected to Drop below 4% This Year

Due to a decline in consumer spending and investment, Korea posted a meager 3.7% in economic growth for the first quarter as compared with the same period last year.

According to the Bank of Korea yesterday, the real GDP growth in the first quarter this year was at its lowest since the fourth quarter of 2001, when the nation posted economic growth of 3.5%.

However, because Severe Acute Respiratory Syndrome (SARS) and the North Korean nuclear weapons issue were not reflected in the first quarter`s economic growth figures, the economic growth rate in the second quarter is forecast lower than 3.7%. In fact, SARS has placed the heaviest burden on the Korean economy in the first half of this year.

Against this backdrop, this year`s economic growth is forecast to be less than 4%.

In particular, the nation` GDP in the first quarter decreased 0.4% from the fourth quarter of last year, the first drop since the fourth quarter of 2000, when the nation recorded negative GDP growth of 1.2%.

Real growth domestic income (GDI), an index showing business sentiment, dropped 2% in the first quarter from the corresponding period last year, showing that economic players regard the current economic slump as more serious than expected.

By item, private spending increased 0.9% from the same period last year, a far lower figure than the 4.8% growth in the fourth quarter of 2002. The 0.9% growth is also the lowest since the fourth quarter of 1998, when consumer spending fell by 9.2%.

Facilities investment also increased by a meager 1.6%, the lowest since negative growth of 2.2% in the fourth quarter of 2001.

As for exports, exports in the textiles and leather industries dropped while exports in the heavy chemicals industry increased by as much as 19.9%.

"Slack consumer spending and facilities investment led to lower-than-expected economic growth in the first quarter," Cho Sung-jong, a senior official with the central bank, said.

Kwu-Jin Lim mhjh22@donga.com