Korea: Slower growth confirmed in Q4; highest fiscal surplus in six years recorded in 2017
March 28, 2018
According to comprehensive data released by the Bank of Korea on 28 March, the economy grew 2.8% in Q4 from the same quarter in 2016, slowing from Q3’s three-and-a-half year high of 3.8%. A preliminary estimate released in January had put growth at 3.0%. In seasonally-adjusted terms, there was a 0.2% quarter-on-quarter contraction in Q4 (Q3: +1.4% quarter-on-quarter), matching January’s estimate. The weaker quarter-on-quarter performance in Q4 is somewhat attributable to a negative base effect and a 10-day public holiday in October.
Domestic dynamics were mixed at the end of last year. High consumer confidence helped drive year-on-year private consumption growth of 3.4% in Q4 (previously reported: +3.6% year-on-year), up from 2.6% in Q3. Government consumption grew 4.1% (previously reported: +4.5% yoy), down from 4.3% in Q3. Meanwhile, fixed investment grew 5.0% in Q4 (previously reported: +5.8% yoy)—a substantial slowdown from 9.2% growth in Q3, largely due to weaker investment growth in construction and production facilities.
The external sector was confirmed to have dragged on year-on-year economic growth in Q4. Exports contracted 0.6% in the quarter (previously reported: -0.5% yoy), down from 4.4% growth in Q3. Imports grew 4.1% (previously reported: +4.2% yoy), down from 7.4% in Q3. On balance, the external sector detracted 2.3 percentage points from overall growth in Q4 (Q3: 1.4 percentage-point detraction), matching January’s estimate.
On the fiscal front, the government released new data on 26 March showing that the 2017 fiscal balance amounted to a surplus of 1.4% of GDP (2016: 1.0% surplus), boosted by better-than-expected tax revenues. It was the highest surplus since 2011.
On 15 March, the government announced it would submit a supplementary FY 18 budget bill to parliament in April. The bill, which would come on top of a regular budget approved in December that already contains a 7% increase in spending compared to the 2017 budget, will include approximately KRW 4 trillion (0.2% of GDP) in additional spending aimed at reducing youth unemployment. It would be partially funded by the fiscal surplus obtained last year.
Author: Edward Gardner, Economist