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Korean Economy Losing Momentum
New Normal Era
Korean Economy Losing Momentum
  • By Cho Jin-young
  • November 28, 2014, 03:02
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Samseong Station intersection in Daechi-dong, Seoul, South Korea. The entire surrounding district was created in the last 50 years, a product of Korea's growing economy.
Samseong Station intersection in Daechi-dong, Seoul, South Korea. The entire surrounding district was created in the last 50 years, a product of Korea's growing economy.

 

The Korean economy is entering a so-called new normal state characterized by low growth, low consumption, and low unemployment. Unfortunately this will inflict increasing financial pain on corporations and households alike. The current composite consumer sentiment index (CCSI) is even worse than immediately after the Sewol Ferry sinking, and most people are also negative about the outlook for the next six months. Companies, failing to find an attractive investment destination, are refraining from taking out loans for investment even after the interest rate cut as of late.

The economic stimulus package of Deputy Prime Minister Choi Kyung-hwan and the recent key rate cut by the Bank of Korea are not working as desired amid concerns over deflation. Under the circumstances, the leadership of the Deputy Prime Minister is being put to test.

According to the central bank, Korea recorded a current account surplus of US$9 billion in October to remain in the black for 32 consecutive months. Still, experts point out that such a feat will not be found for the time being without a major industrial structural innovation.

The monthly exports decreased by 8.7 percent from a year ago in October, due mainly to the decreasing sustainability of the processing trade relying on China that is witnessed in the semiconductor, display panel, and clothes manufacturing sectors. Besides, shipments and added value are declining in the mining, petrochemical, and manufacturing sectors.

Corporations are reluctant to make investments, too. The industrial loan increment, which amounted to over 16 trillion won (US$14.5 billion) in each of the first and second quarters of this year, fell to 11.5 trillion won (US$10.4 billion) in the third.

Consumers’ sentiment hit a 14 month low as well. The CCSI, which reached 107 in August and September, is now at 105. In the meantime, the number of individual rehabilitation requests amounted to 93,105 between January and October, and is expected to break last year’s record at 105,885 at the end of this year.

The total household liabilities increased by 22 trillion won (US$19.9 billion) to 1.060 quadrillion won (US$959 billion) between the second and third quarters. The amount is estimated to break the 1.1 quadrillion won mark at the turn of the year, given the central bank’s key rate cut in October.