Focus turns to sluggish Korean economy

South Korea’s industrial output shrank the most in more than five years in May

Heavily indebted  households in South Korea are keeping a lid on growth.  Photograph: SeongJoon Cho/Bloomberg

Heavily indebted households in South Korea are keeping a lid on growth. Photograph: SeongJoon Cho/Bloomberg

Tue, Jul 1, 2014, 01:05

The backdrop to the trade mission to Korea was an uncertain political backdrop, with the government still trying to appoint some key ministerial positions, including the finance ministry,

The Sewol ferry disaster is having a dampening effect on domestic demand in South Korea and Moody’s has warned that heavily indebted public-sector corporations and households are keeping a lid on growth, although most are still predicting that the outlook remains positive for Asia’s fourth-largest economy.

South Korea’s industrial output shrank the most in more than five years in May, adding to signs the economic recovery is losing momentum. The economy grew 3.9 per cent year-on-year in the first quarter, faster than the 3.7 per cent growth in the final quarter of last year, on the back of higher demand for tech and petrochemical products in Europe and the US.

South Korea’s central bank, the Bank of Korea, predicts the local economy will grow 4 per cent this year and 4.2 per cent next year.

There was interesting news from across the border last week too, where it seems that despite the United Nations sanctions placed on North Korea over its nuclear programme, the closed economy there grew 1.1 per cent last year.

The increase was driven by agricultural expansion because of the better weather, according to estimates by the Bank of Korea. North Korea does not publish economic data. And trade was at its highest since records began in 1990.

However, a glance at the trade figures shows the economic gulf between the two Koreas, divided bitterly since 1953 when the Korean War ended.

Trade in North Korea last year stood at a record high of $7.3 billion (€5.36 billion), of which $3.2 billion was exports and $4.1 billion import. More than 89 per cent of trade in North Korea last year was with China. In South Korea, trade was at $1.1 trillion.

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