The slowdown in the Chinese economy has had a big knock-on effect on South Korea (Australia’s fourth biggest trading partner) which yesterday revealed that its economy has slowed sharply in the final three months of 2015.
The country’s central bank, the Bank of Korea, said the economy grew at a seasonally-adjusted quarter 0.6% from the September quarter, when it was up 1.3% from the June quarter.
The September quarter performance was the best for a single quarter for five years.
And while growth picked up though on a year-over-year basis of 3% from 2.7% in the third quarter, economists said the economy lost much of the momentum it gained from government stimulus-fuelled growth in the three months to September.
For the full year, the Korean economy grew 2.6%, slower than 3.3% in 2014.
South Korea GDP Slips
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Bank of Korea figures show that construction investment fell significantly in the final quarter, thanks to the slowing housing market as the positive impact of easy mortgage rules and cheap credit started fading.
The Bank of Korea cut interest rates twice in 2015 (the same number as the RBA did here), but the impact of those reductions was fleeting compared with the shock of the impact of the slowdown in external demand.
Exports fell at the fastest rate in six years (thanks to the slowdown in Chinese and the US economies).
Overseas shipments, which account for half of Korea’s output, shrank 7.9% in 2015, the weakest performance since the GFC in 2009. The Bank of Korea this month cut its 2016 growth forecast to 3% from an earlier projection of 3.2%.
And while it held its key interest rate steady for a seventh straight month, pressure for another reduction will grow if the weak final quarter growth carries over into the early months of this year.
But the central bank is reluctant to lower rates again given South Korea’s high levels of household debt resulting from the housing boom and existing high levels of credit card debt among consumers.
For Australia the news means that all our major markets in Asia are either sluggish or slowing as 2016 comes to the end of the first month. That means another tough year ahead for commodity exporters especially.
