S Korea’s growth slows amid political turmoil

Bloomberg

South Korea’s economy expanded at the slowest pace in more than a year in the fourth quarter as a political scandal engulfing impeached President Park Geun-hye and conglomerates including Samsung Group hurt consumer confidence and spending. Construction investment fell as the government took steps to curb household debt and property market overheating in some areas.
Gross domestic product increased 0.4 percent in the fourth quarter from the previous three months, when it expanded 0.6 percent; estimate was for a 0.3 percent gain. From a year earlier, growth during Oct.-Dec. was 2.3 percent, according to data released Wednesday by the Bank of Korea; estimate was 2.2 percent. Annual growth in 2016 was 2.7 percent, matching the BOK’s projection.
Growth in Asia’s fourth-biggest economy is under pressure. Park’s fate remains unclear and the Trump administration appears poised to raise global trade barriers. The BOK this month lowered its projection for 2017 growth to 2.5 percent from 2.8 percent, with Governor Lee Ju-yeol citing expectations of weaker consumption. Consumer confidence in January slid for a third month to nearly an eight-year low. A silver lining for Korea is that with a debt-to-GDP ratio of about 40 percent, the country has room for more fiscal spending, which the central bank and some law makers are advocating. The BOK, with its key rate at 1.25 percent, can also cut further if needed.
“Calls for more government action could rise if data remains weak this quarter,” Kim Doo-un, an economist for Hana Financial Investment in Seoul, said before the release. “I expect 2.4 percent expansion for 2017, and an extra budget and rate cut could be deployed within the first half.” Domestic demand weakened during the fourth quarter, Woo Jae-joon, an economist for Bank of America Merrill Lynch in Hong Kong, said before the release. Domestic political uncertainty and weakening consumer sentiment seem to have acted as a drag on domestic demand, Woo said.
Private consumption increased 0.2 percent during Oct.-Dec. from the third quarter, when it expanded 0.5 percent. Government spending rose 0.5 percent, while construction investment was down 1.7 percent; construction investment shaved 0.3 percentage point off GDP. Infrastructure investment rose 6.3 percent and was the biggest contributor to growth in the fourth quarter, adding 0.5 percentage point to the expansion from previous quarter. Gross domestic income for 2016 increased 4.1 percent from the previous year. Tepid growth in private consumption, which accounts for 40 percent of GDP, is most to blame for slower growth in Q4, said Chung Kyu-il, a director at BOK’s economic statistics department. Quarter-on-quarter contraction in construction investment in the fourth quarter is due mainly to base effects and the BOK doesn’t see signs of a rapid fall in such investment, said Chung. An 11 percent rise in construction investment in 2016 was highest since 11.9% growth in 1993, said Chung.