3.1 Percent Growth Last Year, the Lowest Since the Economic Crisis

Last year, Korea’s real economic growth plunged 3.1 percent, the lowest in five years. In addition, the real Gross National Income (GNI) growth rate remained at a mere 1.8 percent.

According to the Bank of Korea’s “National Accounts of 2003 (provisional),” announced on March 23, the Korean economy last year showed favorable conditions in the export and construction industries. However, due to a depression in personal consumption and an investment in equipments, the real Gross Domestic Product (GDP) only increased by 3.1 percent. The growth rate is the lowest since the 6.9 percent recorded in 1998, the year of the foreign exchange crisis.

After changing the base year from 1995 to 2002 as well as the statistical standard starting from the 2003 National Account Statistics, the growth rate increased somewhat from the forecasted 2.9 percent by the Bank of Korea. However, if converted to the previous standard, last year’s economic growth is estimated to be in the lower two percent mark.

Real GNI growth rate, which reflects people’s actual purchasing power, plunged to 1.8 percent last year compared to seven percent in the previous year particularly because the terms of trade worsened due to a decline in the won-dollar exchange rate last year.

Nevertheless, the nominal national income per head of last year increased by 10 percent from $11,493 in 2002 to $12,646 as an effect of this decline in the exchange rate. The nominal income per head of last year slightly increased from $12,197 in 1996, the highest value ever.

The growth rate of personal consumption showed a sudden decline from 7.9 percent in 2002 to 1.4 percent last year. The growth rate of investment in equipment did not manage to avoid a negative either, indicated by a plunge from 7.5 percent to 1.5 percent.

Cho Sung-jong, director of the Economic Statistics Department at the Bank of Korea stated, “The yearly growth rate remained low last year because investment and consumption did not recover”, and added, “However, upon entering the fourth quarter (October- December) the growth rate will likely improve thanks to a continued upswing in exports.”

Joong-Hyun Park sanjuck@donga.com