Korea: GDP growth decelerates in Q4 on weaker investment and exports
January 25, 2018
According to preliminary data released by the Bank of Korea on 25 January, economic growth slowed to 3.0% year-on-year in the fourth quarter of 2017, a slowdown from the near four-year high growth rate of 3.8% in the third quarter. Overall, the economy expanded 3.1% in 2017 compared to the previous year, up from 2.8% in 2016. On a seasonally-adjusted basis, economic output decreased 0.2% in the fourth quarter compared to a quarter earlier, contrasting the 1.5% expansion recorded in the third quarter. The weaker quarter-on-quarter performance in Q4, which undershot analyst expectations of 0.1% growth, can be somewhat attributed to a negative base effect and a 10-day public holiday in October.
The domestic dynamics were mixed in the fourth quarter. Fixed investment grew at a markedly slower year-on-year rate of 5.8%, down from 9.2% in Q3. Investment in production facilities moderated, largely due to a weaker increase in machinery orders, as did investment in construction, which was likely deterred by government restrictions put in place throughout last year to calm the housing market. On the other hand, investment in intellectual property ramped up on the back of increased research and development expenditure. As consumer confidence hovered at record highs throughout the fourth quarter, year-on-year growth in private consumption accelerated to 3.6% (Q3: +3.0% year-on-year), while government consumption increased year-on-year at 4.5% (Q3: +4.6% yoy).
Coupled with weak fixed investment, the external sector dragged on economic growth in the fourth quarter. Growth in both exports and imports was significantly down compared to the third quarter. Exports contracted 0.5% on an annual basis in Q4, contrasting 5.0% growth in Q3. Buoyant external demand for semiconductors did not compensate for a slump in the automobile sector, which saw leading companies such as Hyundai and Kia miss their shipment targets. Year-on-year growth in imports came in at 4.2% in Q4, down from 8.5% in Q3.
Korea GDP Forecast
The Central Bank expects the economy will grow 3.0% in 2018. The analysts we surveyed this month are in line with this thinking and foresee the economy growing 3.0% in 2018, which is up 0.1 percentage points from last month’s estimate. For 2019, our panel projects that economic growth will slow slightly, to 2.8%.
Author: Edward Gardner, Economist