World Economy

S. Korea Gov’t Becomes Driving Force in Growth

S. Korea Gov’t Becomes Driving Force in GrowthS. Korea Gov’t Becomes Driving Force in Growth

The main driver of South Korea’s economy is shifting from the private sector to the government, who last year contributed to one-third of the country’s economic growth, a think tank said Wednesday.

South Korea’s economy expanded 2.6% last year, with the government contributing 0.8%, according to the Korea Development Institute. State spending helped with 0.5% and government investment contributed 0.3%. Without such contribution, the country’s economic growth last year would have stopped in the 1% range, the institute said, Yonhap reported.

The government’s role in economic growth has been growing for years. In 2011, the state did not add to the 3.7% growth, but in 2012, government spending and investment accounted for 0.4% of the 2.3% growth. In 2013, the government accounted for 0.6% of 2.9%. The contribution level fell in 2014 to 0.3% of 3.3% before jumping to 0.8% last year, KDI said.

The think tank cites the worldwide economic slump and consequent export slowdown as key reasons for the shift, as private companies withhold investment that result in less hiring.

Corporate facility investments have been in the minus this year—minus 6% in January, minus 7.9% in February, minus 7.4% in March and minus 2.7% in April.

  Joblessness on the Rise

Jobless rate among South Korean youths recorded a higher June figure than any other readings of the same month in 17 years, Statistics Korea reported on Wednesday.

The unemployment rate among those aged 15-29 rose 0.1 percentage point to reach 10.3% in June, the highest since June 1999 when it posted 11.3%, Xinhua quoted the report as saying.

The youth jobless rate kept a record-breaking trend from February this year. The number of youth unemployed increased by 18,000 in June from a year ago.

The overall jobless rate stood at 3.6% in June, down 0.3 percentage points from a year earlier. The number of those unemployed reduced 46,000 last month as the unemployed in those in their 30s to 50s fell, offsetting an increase in those in their 20s.

  Household Debt Up

Household loans extended by local banks continued to rise at a fast rate in June, apparently on record low interest rates, Yonhap quoted central bank data issued Wednesday.

Outstanding household loans extended by local lenders came to 667.5 trillion won ($582.67 billion) as of the end of last month, up 6.6 trillion won from the previous month, according to the data from the Bank of Korea.

The on-month increase far outpaced a five-year average of three trillion won for June from the 2010-2014 period, it noted.

“Home-backed loans continued to show a steady increase on a rise in home transactions,” the bank said in a press release, adding the number of home transactions involving Seoul in June spiked 20% on-month to 12,000.

Home-backed loans came to 500.9 trillion won as of end-June, up 4.8 trillion won from the previous month, while credit borrowing by households gained 1.7 trillion won to 165.8 trillion won.

The rise in household lending, however, also followed a cut in the key interest rate by the BoK in June. The country’s household debt has been on a steady rise since the start of 2015 as the central bank kept its policy rate at record low levels to bolster growth in Asia’s fourth-largest economy.

Overall household debt came to a record high of 1,223.7 trillion won as of end-March. The BoK slashed its key rate to a record low of 1.25% in June.

Unlike households, local firms reduced their bank borrowing, in a possible anticipation of worsening business conditions down the road.

Outstanding corporate loans extended by local banks came to 742.9 trillion won as of end-June, down 1.2 trillion won from the previous month.

Borrowing by small and medium-sized companies gained 1.7 trillion won, while larger firms reduced their overall borrowing by 2.9 trillion won over the cited period.

South Korea’s exports have been on a steady decline since the start of last year, again slipping 2.7% on-year in June.