Seoul – South Korea's economic growth has hit a snag, with the first quarter's real gross domestic product (GDP) contracting by 0.2% compared to the previous quarter. This downturn has ignited concerns over the leadership of Deputy Prime Minister and Minister of Economy and Finance, Choi Sang-mok, and his economic team.
The Bank of Korea's (BOK) recent announcement highlighted that the prolonged period of low growth, since the second quarter of last year, is primarily attributed to a slump in construction investment and sluggish private consumption. BOK officials emphasized that while private consumption isn't drastically pulling down growth, its contribution has significantly diminished. Construction investment, in particular, has been a persistent drag on the economy.
Domestic demand contributed a negative 0.6% points to the first quarter's growth rate, with construction and equipment investments detracting 0.4% and 0.2% points, respectively. Both private and government consumption expenditures showed minimal positive impact.
Adding to the economic woes, the business sentiment remains weak. The BOK's Business Survey Index (CBSI) for April, although slightly up from the previous month, remains below the long-term average, indicating lingering economic pessimism. Furthermore, the specter of increased tariffs, depending on the outcome of ongoing trade negotiations with the United States, casts a shadow over export prospects. Some experts warn that South Korea's annual growth rate could potentially plummet to the 0% range.
Critics argue that the government's response has been inadequate. Despite clear signs of an impending economic slowdown, including declining exports and weakening consumer confidence, the Ministry of Economy and Finance (MOEF) initially resisted calls for a supplementary budget, opting instead for front-loading existing budget expenditures. The MOEF's reluctance to swiftly implement fiscal stimulus measures has drawn criticism, especially given the political uncertainties stemming from the December 3rd incident and unforeseen events such as the Jeju Air accident and wildfires.
While the MOEF eventually announced a supplementary budget of 12 trillion won, concerns linger over the efficacy of its budget execution. Data from the National Assembly Budget Office revealed that the first-quarter budget execution rate fell short of expectations, mirroring last year's performance.
National Assembly Speaker Woo Won-sik directly criticized Prime Minister Han Duck-soo for the government's sluggish budget execution during a parliamentary address.
Deputy Prime Minister Choi Sang-mok's remarks during a parliamentary inquiry, where he suggested that fiscal stimulus was not the solution to the economic downturn, have also drawn scrutiny. His decision to delay the appointment of a Constitutional Court justice has been criticized for adding to the economic and political uncertainty.
Experts are calling for more decisive government action. Professor Woo Seok-jin of Myongji University emphasized the need for a supplementary budget to address the economic challenges, criticizing the current economic team's reluctance. Professor Ryu Deok-hyun of Chung-Ang University warned of a potential 0% growth rate due to declining exports and the looming impact of trade disputes.
Economist Joo Won from the Hyundai Research Institute advocated for immediate interest rate cuts and additional fiscal stimulus to revitalize the economy. The consensus among experts is that proactive fiscal and monetary policies are essential to steer South Korea away from further economic decline.
[Copyright (c) Global Economic Times. All Rights Reserved.]
