South Korea's growth slows in Q4 amid political turmoil

Commercial buildings stand in the Gangnam district in Seoul, South Korea.
Commercial buildings stand in the Gangnam district in Seoul, South Korea. PHOTO: BLOOMBERG

SEOUL (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 per cent in the fourth quarter from the previous three months, when it expanded 0.6 per cent; the estimate was for a 0.3 per cent gain.

From a year earlier, growth during October to December was 2.3 per cent, according to data released on Wednesday (Jan 25) by the Bank of Korea; the estimate was 2.2 per cent.

Annual growth in 2016 was 2.7 per cent, 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 per cent from 2.8 per cent, 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 per cent, 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 per cent, 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 per cent 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 per cent during Oct-Dec from the third quarter, when it expanded 0.5 per cent.

Government spending rose 0.5 per cent, while construction investment was down 1.7 per cent; construction investment shaved 0.3 percentage point off GDP.

Infrastructure investment rose 6.3 per cent 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 per cent from the previous year.