The Bank of Korea data shows that the export volume index stood at 135.9 in September, down 2.6% year-on-year.
The Bank of Korea data shows that the export volume index stood at 135.9 in September, down 2.6% year-on-year.

S. Korea Warned of Negative Growth

The Korean economy has been slowing without a rebound, resulting in concerns that it has lost its dynamic

S. Korea Warned of Negative Growth

Concerns are growing that the South Korean economy may end up contracting in the fourth quarter of this year, as a string of woes drag down Asia’s fourth-largest economy.
Experts say that this does not necessarily mean a recession, which technically means an economic contraction for two straight quarters or an economic crisis, but can be one of the factors that may weigh on the already-fragile economy, Yonhap reported.
According to the Bank of Korea, the country’s GDP has increased 0.7% from July to September from the previous quarter, failing to top 1% growth for four straight quarters.
The preliminary data was highlighted by a 1% contraction in the manufacturing sector, which is the worst since the first quarter of 2009. Manufacturers’ contributing ratio to the GDP dropped to minus 0.3%, which also is the lowest since the 2009 first quarter.
The slump in manufacturing is attributable to the struggles of the country’s flagship companies. Samsung Electronics’ Galaxy Note 7 recall in September and Hyundai Motor’s protracted union strike have adversely affected the country’s economy.
“We cannot exclude the possibility of negative growth in the fourth quarter,” Prof. Lee Phil-sang of Seoul National University said. “It is not about whether it is a minus or sub-1% growth. What’s more important is that there is no good news or favorable development expected in this quarter. Samsung and Hyundai had served roles of cushioning bad news, but they are facing difficulties themselves right now.”

  Exports Decline
According to separate BoK data, the export volume index stood at 135.9 in September, down 2.6% year-on-year. In a breakdown, electronic products showed a 4.1% decrease, while transport equipment plunged by 13%.
These numbers lead many experts to voice concerns over economic shrinkage in the fourth quarter. Korea Economic Research Institute said in its Oct. 20 report that the growth rate will remain at minus 0.4% in the fourth quarter.
“There is the possibility of a shrinking in consumption and investment in the fourth quarter,” said Kim Chang-bae at the institute. “Even though we are ruling out the Galaxy Note 7 debacle, the growth rate will likely remain at a loss.”
Prof. Kim Sang-jo at Hansung University also expressed his concern about the economy. “Since 2011, the Korean economy has been slowing without a rebound, resulting in concerns that it has lost its dynamic,” Kim said. “Going without a rebound, the economy can collapse because of accidental factors. It is a very dangerous situation.”
According to Kim, the current slump is stemming from slowing down in the real economy, which is more dangerous to the economy than a crisis coming from financial instability. Though he said he is not sure what will happen in the near future, a potential loss in the fourth quarter is one of the factors that can send the Korean economy toward collapse.

  Security Scandal
Casting a darker cloud in the fourth quarter is an ongoing national security scandal, involving President Park Geun-hye and her close associate Choi Soon-sil.
“If political efforts are good, it can prevent an economic crisis. However, the so-called Choi gate has cast politics into the core of uncertainty, not its protective role. It aggravated potential risks,” Kim said.
Lee also noted that the scandal aggravated investing sentiment and raised questions about political stability. “There is an anxiety that the government may not serve its role and growing uncertainty hampers capital flow, which will pose a negative impact on investments, consumption and the entire economy,” he said.
Posing other threats to South Korea’s economy is the so-called Kim Young-ran Act, which went into effect on Sept. 28. Under the strict anti-graft law, which affects 4 million, public officials, teachers, journalists and their spouses should not be served expensive meals or receive pricy gifts.
As a result, various industries are already coming up with complaints of plummeting sales and profits, including restaurants, golf clubs and farmers.

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