South Korea Gdp Growth Slows As Spending Plunges

Sluggish private and corporate spending slowed growth of South Koreas gross domestic product (GDP) to 5.5 per cent in 1997 from 7.1 per cent in 1996, the Bank of Korea said yesterday.

Despite strong export growth, the GDP growth slowed due to a sharp fall in capital investment and private consumption, the Bank said in a statement.

It said the countrys GDP growth in the quarter to December 1997 was cut nearly in half to 3.9 per cent from 7.4 per cent during the comparable period of 1996.

During the three-month period, exports grew a strong 19.9 per cent, led by semiconductors, petrochemical products and garments, but capital investment contracted by 28.2 per cent.

 

Capital investment and private consumption together contribute between 60 and 70 per cent to gross domestic product, analysts said.

For all of 1997, capital investment fell 11.3 per cent and private consumption grew 3.1 per cent, compared with growths by 8.3 per cent and 6.8 per cent, respectively, in 1996.

The news did not have much impact on the local financial markets, analysts said, because investors were well aware that the real hardship has not yet begun.

Stock prices fell sharply but brokers said the drop was mostly because foreign investors, who have been the driving force on the local stock market, turned to net sellers.

The composite stock price index closed the day 2.53 per cent, or 13.37 points, lower at 515.51.

The won held firmer against the dollar throughout the day, trading at between 1,446 and 1,465 to the greenback against Mondays close of 1,460.

The International Monetary Fund projected this years GDP growth at one per cent or less in its recent review of the progress in the South Koreas economic restructuring efforts.

In December the IMF arranged a record $58.35 billion bail-out package for South Korea, which was hit by an external debt crisis late last year.

Major research institutes have forecast the countrys GDP would contract by one per cent or more this year, led by sharp drops in consumption, for the first time in 18 years.

Investors ignored the news as they were well aware that is almost nothing compared with what they will see, said Park Byung-moon, head of research at LG Securities.

Analysts saw private consumption contracting by around five per cent this year, largely as a result of a drop in disposable income in line with an expected surge in unemployment.

Under the terms of the bail-out, the IMF has recommended South Korea slash fiscal spending, tighten monetary supply controls and speed economic restructuring.

Massive industrial layoffs are expected as a result and the South Korean Parliament has already passed bills aimed at making layoffs easier.

Industrial restructuring has not yet begun in earnest, and massive layoffs will be inevitable once the restructuring starts, especially in the banking industry, said Lee Jeong-ja, head of research at HSBC James Capel.

President Kim Dae-jung also expressed concerns about increasing unemployment when he presided over a meeting of economy-related ministers yesterday.

The unemployment (situation) is not improving and instead is expanding. One and a half million (anticipated number of jobless) is a big figure and the problem is serious, a presidential office statement quoted Kim as saying.