South Korea grew by a six-year low of 2.7% last year, but national per capita income exceeded US$30,000 for the first time, according to data released by the Bank of Korea, or BOK, Tuesday.
The 2018 GDP growth rate was the lowest in six years – down from 3.1% in 2017, 2.8% in 2016, 2.8% (again) in 2015, 3.3% in 2014, 2.9% in 2013 and 2.3% in 2012. Still, the data was no surprise: The BOK had predicted the figure last year, having downgraded earlier estimates.
However, per capita gross national income, or GNI, reached $31,349 last year, up 5.4% from the $29,745 tallied in 2017, Yonhap news agency reported. South Korea passed the $20,000 GNI baseline mark in 2006.
That should be good news for a country that is 50% reliant upon trade, as it indicates higher consumer spending power to boost the economy domestically.
Last year, exports rose 4.2%, well up from a 1.9% increase in 2017, Yonhap noted. In line with rising national incomes, spending rose 2.8% – the highest rate in seven years – while state spending jumped by 5.6% as the government sought to boost the economy.
But South Korea suffered from a drop in facility investments in 2018, hitting a nine-year low of 1.6%, on the back of a cyclical downturn in semiconductors, a key sector for the economy. And construction investment slid 4% on the back Seoul’s efforts to calm down a bubbly real estate market – always a sensitive political issue.
This year’s budget has been heavily front-loaded to take up the shortfall from the chip downturn and to hedge against the global trade risks stemming from the cross-Pacific tariff war.
For 2019, early consensus estimates for annual GDP growth are in the 2.6-2.7% range, with expectations for a slow first half being followed by an upturn in the second half.
While the GNI figures will no doubt be welcomed by the Moon Jae-in administration, the government is facing new pressure. Following the Hanoi summit between North Korean leader Kim Jong Un and US President Donald Trump, which ended with no deal, the government is going to face an uphill struggle pushing forward its flagship policy, which has been North Korean engagement. But without sanctions relief, the South is unable to proceed to economically engage the North.
Meanwhile, negative economic perennials – abusive and over-powerful conglomerates, high household debt, rising youth unemployment and the highest senior citizens’ poverty rate in the OECD – continue to hover over Seoul as major policy challenges.
And regardless of the GNI increase, small and medium-sized enterprises are suffering from rising minimum wage rates – a key Moon initiative – which they say make it too expensive to hire and retain staff.