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Real Gross National Income – First Drop in Five Years

Posted December. 09, 2003 22:50,   

한국어

This year’s January--September gross national income (GNI) recorded its first negative growth in five years, since 1998, after the financial crisis. This means that the real purchasing power of Korean citizens has decreased.

The third quarter gross investment ratio also dropped to its lowest in 18 months due to slack plant and equipment investment, it was reported.

According to the Bank of Korea’s preliminary estimate of third quarter GNI released Tuesday, apart from growth rate prices, real GNI in the third quarter showed an increase of 0.9 percent, at 109.7586 billion won (based on the 1995 constant market price) of the previous year, a consecutive rise from the second quarter (0.3 percent) this year.

However, the cumulative real GNI (January--September) decreased 0.2 percent from the year earlier period. This is the first negative accumulative growth rate since 1998, at minus 9.8 percent.

The gross investment ratio this quarter was 23.9 percent, 0.7 percent less than last year’s 24.6 percent, the lowest figure in six quarters since the first quarter of last year (23.5 percent).

Drop in real purchasing power and deepening slack investments: Director Kim Kyeong-Won of the Samsung Economic Research Institute (SERI) said, “The biggest cause of the decrease was in the first quarter, January through March, with the Iraqi war which skyrocketed oil prices, boosting costs for the import of crude oil which made real GNI fall to a minus 2.1 percent growth, worsening our terms of trade.”

“The reason GNI is showing minus figures is not only due to expensive import rates, but the accompanying low gross domestic product (GDP), which will likely have negative effects on people’s economy,” Kim added.

Critics have pointed out that although the gross savings ratio has risen due to the slump in consumption, the gross investment ratio has declined. The third quarter gross savings ratio has slowly climbed 0.8 percent from the second quarter, to 28 percent. Meanwhile, the gross domestic investment ratio showed disappointing figures, with a low of 23.9 percent, the worst since last year’s first quarter ratio of 23.5 percent.

Park Jin-wook, vice director of the domestic income team at BOK, explained that “the economic slump has made more consumers try to save their many rather than spend it, but none of the money they have piled up is getting to plant and equipment investment.”

Drop in export competitiveness: The scale of real trade loss, which shows price changes in export and import items, makes it clearer why the GNI is suffering so badly this year.

According to BOK, trade loss surged to an enormous 24.4064 billion won in the third quarter as a response to the affected terms of trade, which is 11.8 percent more than the previous quarter. This unprecedented loss is the biggest yet, topping last year’s 24.191 billion won loss in the fourth quarter (October--December).

“This brings us to the assumption that export companies are selling their products at much lower prices than are being imported, and under such continued procedures, gross export rates will only trigger a larger real trade loss,” Cho Sung-jong, head of the financial statistics department at BOK, said.

It is possible that fourth quarter trade terms may not soon recover, as import prices rose 3.1 percent and export prices fell 1.2 percent in October.

“In order to make a breakthrough, the nation and corporations alike need to heighten our level of competitiveness by raising the level of export products,” said associate fellow Shin Sukha at the Korea Development Institute.

Real GNI is an indicator of the real purchasing power of Koreans’ wages, home and away. It is calculated by applying the interest and dividend income of real GDP, trade profit and loss according to changes in terms of trade, overseas investment notes and wages earned by Korean citizens living overseas.



Joong-Hyun Park sanjuck@donga.com