South Korean economic growth decelerates in Q4 2016, to remain firm in 2017

South Korea’s economic growth slowed in the December quarter of 2016 on a year-on-year basis. The fourth quarter GDP grew 2.3 percent year-on-year, a deceleration from third quarter’s 2.6 percent growth. Seasonally adjusted, the economic growth decelerated to 0.4 percent sequentially in the fourth quarter from 0.6 percent in the third quarter.

This is the slowest since the second quarter of 2015. The deceleration was widespread, with private consumption decelerating to 0.2 percent sequentially from 0.5 percent previously, investment slowing to 1.5 percent. Government spending also decelerated to 0.5 percent, whereas exports shrank by 0.1 percent.

In all, the slower momentum of the economic growth shows the impact of domestic political turmoil, implementation of a new anti-graft law that has hurt consumption, restructuring in the shipping sectors and a series of corporate woes that has impacted exports and production.

The South Korean economy is now likely to grow 2.9 percent in 2017, as compared with 2.8 percent growth in 2016, noted Commerzbank. The economic growth is expected to be underpinned by moderate rebound in exports on the back of the rebounding trend in global manufacturing. Moreover, the corporate woes might have a brief effect on exports. Also, the growth is expected to be supported by proactive monetary and fiscal policy approach.

The South Korean government has promised to front-load 70 percent of its 2017 budget in the first half of 2017 and signalled on the likelihood of a supplementary budget. The Bank of Korea has maintained rates accommodative at 1.25 percent and implied that additional cuts are in the pipelines if there is a need.