South Korea, Asia’s fourth-largest economy, grew 2.7% year-on-year in 2018, according to an advance estimate released by the Bank of Korea on Tuesday.

The GDP expansion was in line with forecasts, which had been lowered during the year, but marks a slowdown compared with South Korea’s 3.1% growth in 2017.

And the BOK holds the same forecast – a 2.7% expansion – for 2019, indicating that Asia’s fourth-largest economy will be treading water this year.

A mixed picture

Growth in the fourth quarter of 2018 was 1% over the previous quarter, the BOK added, though exports in the period fell 3.9%

If correct, the BOK’s estimate for 2018 would mark the slowest annual growth since 2012, when South Korea expanded 2.3%, according to data quoted by Yonhap news agency.

Private consumption, government spending and exports led the growth during 2018, while falling construction and facility investment were brakes on the economy, Yonhap reported. Exports – defying the cross-Pacific trade war and its impact on supply chains – grew 4% according to BOK data, but corporate investment dropped 4%.

In his new year’s address, South Korean President Moon Jae-in noted the fact that the trickle-down effect from exports had dried up. With corporations now going offshore to get closer to global markets and to escape a crowded local market with an increasingly expensive and vocal labor force, this had led to a decoupling of macro numbers from micro effect.

Cloudy first half, sunnier second

In 2019, the BOK forecasts 2.7% growth – the same number for 2018, indicating that the economy will tread water. Economists anticipate a bottoming out in the first half of 2019, with a rise in the second half.

Amid a fall in flash memory prices, the semiconductor sector, as well as the petrochemical sector, things look weak in the first half. Chip prices are expected to recover in H2. Among blue chips, Hyundai Motor Group has made a major bet on hydrogen fuel cells, while Samsung Electronics’ facility investments are expected to keep it ahead of rivals in flash memory.

However, its smartphones will continue to face pressure from Chinese rivals. Downside risks for South Korea’s export-reliant economy include the cross-Pacific tariff war, a related slowdown in China, the country’s leading export market, Brexit and monetary policy in major economies.

Potential domestic booster effects in 2019 will be a nationwide roll-out of 5G networks in the spring, enabling, among other things, autonomous driving in select areas.

Moreover, government spending, which helped lift the sagging economy in the fourth quarter of 2018, will be deployed. Fiscal policy spending will rise by 9.5% and Seoul will frontload its budget for the year, with 61% being spent in the first half.

Some 6.4 trillion won ($5.6 billion) will be spent in 2019 on SOC projects, notably highways and subways. Moon has been urging corporations to invest, and a 16 trillion won ($14 billion) financial program to support investment is also in the works. This includes supporting startups and an ICT fund for SMEs.

Government-mandated increases in the minimum wage, low-income worker support and possible reduction in consumption tax on cars are hoped to give consumer spending a shot in the arm.

However, employment growth has fallen far below expectations in 2018, as SMEs lambast Seoul’s minimum-wage policy which they claim prevents them from hiring.