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Korea's stunted
economy
SEOUL - The South
Korean economy grew in the first quarter at the
slowest pace in almost two years due to still weak
private spending and slowing exports, the central
bank said Friday. The nation's gross domestic
product (GDP), or total output of goods and
services, increased 2.7% in the first three months
of the year from a year earlier, the slowest
growth rate since the third quarter of 2003.
Asia's third-largest economy grew only 0.4% in the
January-March period from the previous three
months, if seasonal factors are taken into
account.
The data showed that growth fell
short of estimates by domestic and foreign
financial institutions. In a poll by Yonhap
Infomax, the financial news arm of Yonhap News
Agency, 11 institutions projected annualized GDP
growth of 3.41% for the first quarter. The GDP
grew at 5.5% in the second quarter last year, and
at 4.7% and 3.3% in the third and fourth quarters
of 2004 respectively.
The central bank
said growth fell sharply due to the extended New
Year's holidays in January and February, which
reduced the number of working days. A sharp fall
in cigarette output also dampened growth. Private
consumption rose 1.4% from January through March
from a year ago, marking the second consecutive
quarter of gain. South Korea's economy was
expected to experience a long-awaited recovery
this year as private consumption picked up.
However, concerns have arisen that the recovery
may prove to be short-lived as data released since
the start of the year have failed to show a strong
recovery in spending.
The Ministry of
Finance and Economy hinted Thursday that it might
have to revise its economic growth target for this
year of 5%, due to the weaker-than-expected
recovery in consumer spending. South Korea has
been solely dependent on exports for growth thanks
to the continued slump in consumer spending caused
by the collapse of a credit bubble in 2002.
The economy failed to meet expectations in
2004, expanding just 4.6% year-on-year as the
slump in private consumption offset brisk exports.
The central bank expects this figure to drop to 4%
this year, hitting rock bottom in the first half
before picking up in the second half of the year
to surpass 5%.
Exports rose a seasonally
adjusted 2.5% from the previous three months,
having gained 2.8% in the fourth quarter, the
central bank said. Exporters, including Samsung
Electronics, are reporting sliding profits as the
won's 17% advance against the dollar over the past
year is beginning to tell. Samsung, which accounts
for over one-tenth of the country's exports, said
first-quarter profit dropped 52% year on year,
while Hyundai's first-quarter operating profit
fell 30%.
Finance and Economy Minister Han
Duck-soo recently said growth was expected to
gather pace in the second half of 2005 as consumer
and business sentiment, together with an
improvement in domestic demand, were likely to
recover. But traditional markets, which often
serve as a barometer of consumer sentiment among
ordinary South Koreans, are expected to remain
weak in the second quarter, according to a recent
industry report.
The report by the
Federation of Korean Industries, a lobby group for
major businesses, showed that most of the 720
traditional shops surveyed did not expect their
business to improve in the coming months. The
survey of the shops in seven cities, including
Seoul, Busan, Daegu and Gwangju, showed a sales
index of 73, far below the break-even 100-mark.
The figure is down from 74 in the final quarter of
2004 but is still a gain from 60 in the first
three months of the year.
A reading below
100 translates into more merchants expecting
things to get worse than those who believe that
the future will be brighter than the past. By
business sectors, traditional market merchants
were most upbeat about sales prospects for
consumer electronics, followed by agricultural
produces, meat and clothing, although all were
under the 100 mark.
Salespeople in Daejeon
and Seoul were most pessimistic about their
business prospects in the April-June period, with
readings of 46 and 52 respectively, while those in
Ulsan and Incheon were far more optimistic by
reporting 98 and 95 respectively. Traditional
market merchants also said that despite the Lunar
New New Year holiday in February, which usually
spurs consumer spending, the first quarter had
been disappointing. Over 28% of the merchants said
the weak economy has taken a big toll on their
business, the report said.
They called on
the government to do more to revitalize the
economy, while simultaneously helping to improve
the poor shopping conditions at their traditional
markets. In order to help kick-start the economy,
the government has front-loaded budget spending in
the first half of the year and cut corporate
taxes. The central bank also froze its key
interest rate at a record-low 3.25% for six
consecutive months to May. But concerns have
arisen that the recovery may be short-lived.
Feeble household spending, caused by the collapse
of a consumer credit bubble in 2003, has been a
real headache for policymakers striving to revive
the sagging economy.
Inflation is another
factor adversely affecting household spending.
Korea's commodity prices rose 5.1% in April from a
year earlier due to soaring oil and raw material
costs, a factor that could add up to future
inflationary pressure, the central bank has
admitted. Compared with a month earlier, prices of
raw materials and intermediate goods gained 1.5%
last month, the Bank of Korea (BOK) said in a
report. The annual gain in production goods prices
was 4.4% in March and 4.2% in February. Commodity
prices serve as a key barometer of future
inflationary build-ups as they usually raise
companies' production costs.
"Global crude
oil, iron and other raw material prices, as well
as petrochemical and metal prices, caused a jump
in the general price level," the BOK said. The
price of Dubai crude oil, which accounts for
nearly 80% of Korea's oil imports, came to an
average US$47.2 a barrel in April, up from $45.9
the previous month. South Korea is the world's
fourth-largest oil importer and imports its entire
oil requirement.
(Asia
Pulse/Yonhap) |
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