SEOUL, South Korea – South Korea’s economy expanded at its slowest pace in three quarters during the first three months of this year, as exports and domestic demand sagged due to subdued global demand and heavy household debts.
The Bank of Korea said Tuesday that Asia’s fourth-largest economy grew 2.7 per cent during the first quarter over a year earlier and just 0.4 per cent from the previous quarter.
The results were the worst since the third quarter of 2015, when private consumption and tourism took a big hit from the spread of the deadly Middle East respiratory syndrome. Growth in July-September was 2.8 per cent year-on-year.
Government efforts helped boost private consumption late last year and early this year the authorities tried to aid recovery by cutting consumption tax cuts and by frontloading the budget.
But the latest results showed that those measures fell short of reviving domestic demand as high youth unemployment rates and hefty household debts pressured consumer spending. Weaker exports and capital spending also weighed on growth.
The economy will likely face more headwinds in the near term as the government pushes to restructure some shipping companies, shipyards and other unprofitable firms. That could drive up unemployment rates and further pressure household spending. Steelmakers and shipbuilders used to fuel growth for South Korea’s export-driven economy but due to weak global demand and heightened competition from China, they have been mired in massive losses.
Last week, the central bank cut its annual growth forecast by 0.2 percentage points to 2.8 per cent.
The bank held off from lowering the key interest rate from the record low of 1.5 per cent this month. But expectations are mounting for a rate cut.