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Tumbling Exports

Posted January. 26, 2007 06:27,   


The growth rate of the Korean economy last year was five percent, matching the estimates by the Bank of Korea.

However, the ongoing contraction of investment compounded by exports that have been decreasing since the fourth quarter of last year (October-December) have set off a warning signal.

The Bank of Korea said yesterday in a document titled “Real GDP of the Q4 of 2006 and of the Year” that the real GDP last year was 757.9375 trillion won, which is a five percent increase from that of 2005 (721.4914 trillion won).

The real GDP in the fourth quarter of last year rose by 0.8 percent from that of the previous quarter.

The Bank of Korea analyzed that the five percent growth was possible because exports achieved a two-digit growth rate, and the service sector that had been comparatively dull showed prominent growth.

Exports last year jumped by 13 percent compared to the previous year, and the service business expanded by 4.1 percent, achieving the highest growth rate since 2002 (7.8 percent).

Construction investment, however, decreased by 0.1 percent due to the continual government measures on the real estate market and the consequent reduction investment on construction in the private sector. It is the first time the investment on construction has dropped since 2000 (―0.7 percent).

Manufacturing recorded a 0.6 percent growth rate in the fourth quarter last year, which is only one-fourth of the 2.4 percent in the previous quarter (July-September).

Business sentiment appeared to be unfavorable in general. With the conditions for trading aggravated by decreased export prices and increased import prices, which led to the increase in the real trade deficit, the gross domestic income (GDI) that shows real purchasing power did not rise as much as the growth rate.

The real trading deficit last year was 68.7974 trillion won, a 48.6 percent jump from the previous year (22.4848 trillion won), limiting the growth of GDI to 2.1 percent.

Exports in the fourth quarter also decreased by one percent compared to the previous quarter, shifting downward for the first time in nine quarters since the third quarter of 2004 (―0.4 percent). The degree of decrease was the biggest since the second quarter of 2001 (―5.4 percent).

A fellow of LG Economic Research Institute Song Tae-jeong anticipated, “The growth rate this year will be pushed down to four percent due to the drop in the exchange rate of the won and the dull growth of the global economy.”