Publications
Partners
Seoul - South Korea's economy slowed sharply in the final quarter of 2014, with growth hovering around six-year lows, knocked by weak government spending and global demand and heaping pressure on the central bank to cut interest rates further.
Asia's fourth-largest economy grew a seasonally adjusted 0.4% in the October-December period on-quarter, central bank estimates showed on Friday, less than half of the 0.9% gain in the third quarter.
It matched the same rate in the third quarter of 2012 and is the worst since early 2009.
The weak quarterly growth rate, which was in line with forecast from a Reuters survey of 16 analysts, comes after the European Central Bank (ECB) on Thursday launched a government bond-buying programme to revive a sagging euro zone economy.
The ECB joins several other global central banks, including Bank of Canada's shock rate cut this week, in pump-priming their economies and taking preemptive action to defuse the risk of deflation from plunging oil prices.
Although the Bank of Korea has downplayed the risk of deflation, analysts say the central bank is overly optimistic about the economic outlook and are predicting another rate cut to recharge a faltering recovery. December inflation dipped to 0.8 percent, the lowest in over 15 years.
"If (the ECB move) leads to further easing in South Korea as well, it would boost the economy here, too," said Seo Hyang-mi, fixed-income analyst at HI Investment & Securities. She expects the BOK to deliver a cut by April.
In the latest quarter, construction investment fell by a seasonally adjusted 9.2%, the worst since early 1998 as weak tax revenue prompted the government to cut investment in construction projects.
Markets priced for easing
Financial markets showed a relatively muted reaction as the central bank had already primed investors last week for the poor growth figures.
Governor Lee Ju-yeol told reporters on Thursday that the central bank was "not pessimistic" about this year's economic prospects despite a steep downgrade in its growth forecast.
Analysts largely disagree with Lee's sunny view. The 1-year treasury bond yield stayed below the benchmark seven-day policy interest rate, indicating investors are pricing in a high chance of another rate cut.
At a briefing following the GDP release, a senior statistics official from the central bank pointed to the uncertainty facing the trade-reliant economy, not least from a slowdown in China, South Korea's biggest export market.
The Bank of Korea cut its policy rate in three steps since the current easing cycle began in May 2013, with the most recent easing coming in October last year to a record-matching low of 2.0%. It next reviews policy on February 17.
On an annual basis, the economy grew 2.7% in the December quarter, compared with a forecast median rise of 2.8% and slower than a 3.2% increase set in the third quarter.
