South Korea has just experienced the worst single quarter economic growth in over three years. Falling investment numbers and slowing exports brought the nation’s GDP to 0.7%. This fell short of the 1% gain originally estimated and was the weakest quarterly growth since the 4Q of 2004.
Even though the nation is seeing increased inflation, it is highly probable that South Korea’s central bank will lower interest rates as early as May. The economic outlook for the short-term is rather poor, with expectations that growth will continue to be slow through the next quarter. It is now believed that the Korean economy is being hit harder than expected by the global slowdown.
The benchmark interest rate has been sitting at 5% since August, and is now likely to see a 0.25% drop when the central bank makes the announcement in May. Originally, it was intended that the rate cut wouldn’t come until the middle of the third quarter. The Bank of Korea’s Director has said that the quarterly growth in the second half of this year may outperform the first-quarter readings, hoping that capital and construction investments will improve.
It is worth noting that the new South Korean President, who was heavy in his talk of economic progress, now faces a rather steep uphill climb over his short-term goals. It will also be no small task to hit the President’s proposed goal of 7% economic growth over his 5-year term.
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