Korea recorded an economic growth rate of 2.8% last year, achieving a turnaround for the first time in three years. Still, the quarterly growth rate dipped below the 1% mark again and the annual growth rate itself remained below the potential growth rate for three years in a row.
The Bank of Korea announced on January 23 that the country’s GDP is estimated to have grown by 0.9% between the third and fourth quarters of 2013. The annual real GDP growth rate is expected to have reached 2.8%, which is equal to the central bank’s earlier estimate.
The economic growth rate had fallen from 6.3% to 3.7% between 2010 and 2011 and then to 2.0% in 2012. “In 2013, Korea showed a stable increase in exports along with spending in the private sector, while the investment in the construction industry turned into positive growth,” the central bank explained. The real GDI, in the meantime, increased 4.3% and the GDI growth rate exceeded the GDP growth rate as the real trade deficit was reduced by improved international trade conditions.
What is concerning is the fact that the quarterly growth rate fell below 1% again, 0.9% to be exact, in Q4 2013. Some experts are pointing out that the percentage is evidence of the recovery of the Korean economy losing steam.
The biggest reason for the drop is the decreased financial commitment on the part of the government. “The tax revenue declined by 1.1 trillion won [US$1.023 billion] between 2012 and last year, due to some errors in tax collection,” said Jeong Yeong-take, head of the Economic Statistics Bureau of the Bank of Korea. He added, “Government spending fell in Q4 last year because of it, causing the growth rate to remain below 1%.”
Government spending rose 1.2% and 2.4% in the first and second quarters thanks to economic stimulus measures, respectively. However, the growth of the amount stood at 0.1% and 0% in the following two quarters.
Another concern lies in the annual growth rate falling short of the potential growth rate for three consecutive years. The central bank is estimating the latter at 0.8% to 0.9% on a quarter-on-quarter basis, and between 3.3% and 3.8% year on year. In October, BOK governor Kim Choong-soo said that the figure would be approximately 3.8%. Still, the bank mentioned the quarterly growth rate is now catching up with the potential growth rate at a faster pace than before.