Investment Grows a Paltry 0.5 Pct. in 1st Half

Domestic investment grew a mere 0.5 percent in the first half of the year, the lowest since the first half of 2001.

Experts say the government should strive to boost investment via deregulation, saying years of weak investment could weaken growth potential.

The Bank of Korea announced yesterday that the fixed capital formation, which includes investment in construction, facilities and intangible fixed assets, saw its slowest growth since the first half of 2001, when it declined 3.6 percent.

The growth rate hit 1.4 percent in 2005, two percent in 2006 and 6.2 percent last year.

Due to sluggish investment in construction and facilities, fixed investment barely grew in the first six months. Construction investment fell 0.9 percent in the first half year-on-year due to sluggish apartment sales and the anemic property market.

Facility investment increased a mere 1.1 percent from a year ago, the weakest growth since the first half of 2003, when it grew 0.9 percent.

Fixed investment in intangible assets such as software and mineral exploration jumped 7.4 percent year-on-year.

Central bank official Choi Hye-jeong said, “Corporations have hesitated to invest since managerial uncertainty has increased due to surging international prices of oil and raw materials and sluggish domestic demand. Large corporations’ facility investment is likely to grow in the second half.”

Extended years of sluggish investment creates a vicious circle of job decline, decreasing income, sluggish domestic demand and falling investment, thus weakening growth potential. The fall in investment is partially blamed on year-on-year job growth of a mere 153,000 last month, down from 303,000 jobs created in July last year.

Kwon Soon-woo, a research fellow at Samsung Economic Research Institute, said, “The government and political leaders should make more efforts to ease regulations. The global economy will face difficulty over the next few years, but this can be a good investment opportunity for companies, which have strengthened their fundamentals since the financial crisis.”

parky@donga.com