SEOUL, Dec. 2 (Xinhua) — Political turmoil in South Korea, triggered by a scandal involving President Park Geun-hye, adds to concerns over the already faltering economy, heralding a drawn-out slump in the absence of economic control tower.
Real gross domestic product (GDP) rose 0.6 percent in the July-September quarter compared with the previous quarter, staying below 1 percent for one year, Bank of Korea (BOK) data showed on Friday. Except the third quarter of last year, the zero-level growth lasted for over two years.
The protracted low growth stemmed mainly from global economic slump as the South Korean economy depends on exports for about half of production. The country’s manufacturing activity in the third quarter posted the fastest fall since early 2009 when the global financial crisis rattled the world economy.
Failure of government policy in curbing household debts weighed down on the already sagging economy. Households were encouraged to purchase new apartments with borrowed money as the BOK cut its benchmark interest rate from 3.25 percent in July 2014 to an all-time low of 1.25 percent in June this year.
The government eased regulations on mortgage financing, speeding up an increase in the already massive home-backed loans. Consumers were discouraged from spending money amid rising debt-servicing burden. Market interest rates began to go higher on expected U.S. rate hike in December.
Adding to concerns about the economy, South Koreans tightened purse strings further on political uncertainties, caused by the scandal involving President Park and her decades-long friend Choi Soon-sil who was indicted on multiple counts including abuse of power and extortion.
Prosecutors identified Park as a criminal accomplice to Choi, making the first South Korean female leader become the country’s first sitting president to be investigated as a suspect.
Political unrest is being prolonged as the embattled president dismissed demand for her voluntary resignation. Park deferred the decision on her fate to the unicameral National Assembly, spawning public criticism that it is a ploy to cripple impeachment efforts.
The prolonged turmoil resulted in the worst consumer confidence in about seven and a half years. The composite consumer sentiment index, which reflects consumers’ assessment on economic conditions, declined to the lowest since April 2009, according to BOK data.
Finance Minister Yoo Il-ho who doubles as deputy prime minister for economic affairs said earlier this week that private consumption and corporate investment weakened on political situations at home and external uncertainties caused the U.S. presidential election.
U.S. President-elect Donald Trump reportedly has a plan to re-establish its military alliance with South Korea and re-negotiate free trade pact between the two allies. Trump’s protectionist moves may damage the already struggling South Korean exports.
The country’s November exports managed to rise 2.7 percent, but the overseas shipment declined in the past 23 months except for August and November this year.
Worries emerged about the actual absence of economic control tower. Yoo in charge of overall economic affairs has been in an unstable position as Park appointed new finance minister to replace him.
Opposition lawmakers have refused to accept the cabinet reshuffle proposed by the scandal-hit president, delaying the approval of the appointment.
Signs of low growth were detected in other economic indicators. Industrial output fell for two months through October, and the October jobless rate rose to the highest in 11 years due to the ongoing restructuring among shipbuilders and shipping lines as well as falling corporate profits.
Economic outlook gets dimmer. The Organization for Economic Cooperation and Development (OECD) recently revised down its 2017 growth forecast for the South Korean economy from 3.0 percent to 2.6 percent.
Two of domestic economic think tanks set their growth outlooks for next year at 2.2 percent, and the BOK is widely expected to slash its forecast from the current 2.8 percent. Some expected South Korea’s real GDP to record a negative growth in the fourth quarter.
by Yoo Seungki
