Last Year`s Growth Rate Only 4.6 Percent

The annual growth rate of gross domestic product (GDP) registered 4.6 percent, less than the government’s initial target, as the GDP growth rate during the fourth quarter of last year (October to December) merely marked a year-on-year increase of 3.3 percent.

However, there are signs of economic recovery because quarterly economic growth rates have gradually increased since the third quarter of the last year (July to September) and private consumption, which had continuously dropped, has turned around starting the last quarter of the previous year.

Despite bad economic records, Korea’s per capita GNI (Gross National Income) in dollars has jumped to 14,162 dollars thanks to the strong won.

Economic growth rates are less than expected-

The GDP growth rate in the last quarter of 2004 remained at 3.3 percent, the lowest record since the third quarter of 2003 (2.3 percent), according to a report titled “2004 National Accounts” (preliminary name) released by the Bank of Korea on March 22. That is mainly because the rate of increase in exports, which was 26.9 percent during the first and second quarters of last year and 17.7 percent in the third quarter, dropped to 9.8 percent during the last quarter of 2004 because of the surge in the value of the won. Net exports of services and products (exports minus imports) contributed to 73 percent of GDP growth last year. In 2004, the real GDP growth rate was 4.6 percent, which is higher than the 3.1 percent of 2003, but far less than the 5.0 percent that was the government’s goal.

Real economy worsens-

Real GNI that reflects the public’s thoughts toward the economy marked only a 3.8 percent increase in 2004, far short of GDP growth rate during the same period. This was a result of trade conditions worsening as the prices of commodities and imported goods increased more than export prices. The bipolarization in export and domestic consumption, large conglomerates and small-and-medium sized companies, and manufacturing and service industries, was very perceptible. GNI per person last year was 14,162 dollars, up 11.3 percent from the previous year, thanks largely to the decrease in the won-dollar exchange rate. Per capita GNI in won was only 16.21 million won, a 6.9 percent increase from last year.

Can the economy get any worse?-

The Bank of Korea argues that last year’s statistics should not only be translated in a pessimistic way.

This argument is based on the fact that the GDP growth rate has improved from 0.6 percent in the second quarter to 0.8 percent in the third quarter and to 0.9 percent in the last quarter of 2004 when seasonal factors are removed. Spending in the private sector, which had continuously declined for one and a half years since the second quarter of 2003, has turned the corner, recording a 0.6 percent increase during the fourth quarter of 2004.

Kim Byung-hwa, the director of economic statistics for the central bank, said, “The sluggish export growth rate during the fourth quarter of last year looks serious because exports during the last quarter of 2003 were too good,” adding, “The economy will not get any worse considering the recovery of consumption in the private sector.”

However, Jung Moon-gun, the managing director of the Samsung Economic Research Institute, said, “It is too premature to regard domestic consumption as an engine for economic growth, even though there are little glimpses of recovery in department store sales and credit card use.”

Kyung-Joon Chung news91@donga.com