South Korea’s Economy Declined in Q1

South Korea
Workers walking to their offices. (Photo: REUTERS/Yuya Shino/File Photo)

South Korea's GDP declined to -0.3 percent since the last quarter due to reduced government spending and the sluggish capital investment and exports. The decline was announced by the Bank of Korea on Thursday.

The bank reported the worst quarter-on-quarter figure of the nation since 2018. Last year, South Korea's GDP increased by 1.8 percent during the same period. The overall GDP growth of the country is projected to be 2.5 percent which is a downgrade from the expected 2.6 percent earlier this month.

South Korea's growth is expected to rebound in the second quarter due to the rise in state contributions which includes a supplementary budget which is pending at the National Assembly.

The GDP of the country fell in the first quarter of 2019 due to the dramatic decline in investments which became a burden to the overall GDP growth rate as it falls -0.7 percent. Contrary to the previous first quarters, the South Korean government's outlays usually increase which suggests that the contributions from the state remained at a normal level. Analysts believe that the GDP should have remained static instead of a minus growth.

A senior official at the Ministry of Strategy and Finance said in an interview with Asia Times that the first-quarter GDP decline is a temporary phenomenon due to a sharp drop in contributions from the government sector which will not continue.

Recently, the South Korean government expanded its budget for this year. The implementation was poor especially in SOC investments for public use facilities in the sports and recreation sectors. The country plans to spend 8.6 trillion won on SOC projects in 2019.

An official at the ministry said that the early execution of the budget at the central-government level was good but the local government's execution was not good. The source added that the actual execution of SOC in January and February was particularly sluggish. The Ministry of Finance of the country projected a rebound of 1 percent in the second quarter due to the base effect of negative growth in the previous quarter and the strengthened effect from full-fledged fiscal execution.

Analysts see additional external factors despite the ministry's positive projection. The country suffers from the effect of the United States-China trade war which caused its semiconductor process to decline. China and the United States are two of the biggest trade partners in South Korea. The prices for semiconductor chips are expected to remain low during the second half of the fiscal year.

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