SEOUL -- The deceleration of the South Korean economy has become evident, with sluggish exports, capital investment and consumption creating formidable headwinds.
Gross domestic product growth came to a measly 0.4% in the January-March quarter while capital investment dropped 5.9%, according to preliminary figures by the Bank of Korea. Spending on machinery and transport equipment was especially tepid.
Declining investments could impact future output, Jeon Seung-cheol, the head of the central bank's economic statistics department, told reporters after the announcement.
The last time the economy expanded by around 0.4% was in April-June 2015, when the Middle East respiratory syndrome outbreak dealt a heavy blow to consumption.
Exports fell 1.7% on the slowdown in China and other markets around the world. Exports had declined year on year for 15 straight months through March, according to the Ministry of Trade, Industry and Energy, weighing down corporate investments and output.
The average capacity utilization at manufacturers hit a nearly seven-year low of 72.3% in January, according to the government's Statistics Korea. The figure dropped in key industries such as machinery, automobiles and chemical products. Utilization recovered slightly in February, but still fell short of the 80% range marked in the January-March quarter of 2012. Overcapacity has further sapped investment demand.
Consumption dipped 0.3% from the last three months of 2015. It shrank for the first time in three quarters, partly on a rebound from a large-scale sale conducted by major retailers last fall. Consumers are looking for cheap, unbranded products even when it comes to food and daily items, according to discount store chain E-mart.
The South Korean government decided in February to offer tax cuts on car purchases until June, extending a consumption-boosting scheme that was originally concluded at the end of last year. This helped lift consumption in January-March but was not enough to generate growth, according to the Bank of Korea.
The government has emerged as the spender of last resort. The 1.3% climb in government spending and 5.9% jump in construction investment were among the few bright spots in the quarterly report.
The Bank of Korea sees positive effects from the extended auto tax cut and greater capital investment over the April-June quarter. But the sluggish economy has helped sow public frustration. The approval rating for President Park Geun-hye has sunk to an all-time-low 29%, recent polls by Gallup Korea show. Many cite her lack of communication and her economic policies as their reasons for disapproval.
Seoul has pushed to restructure and boost the competitiveness of companies in the steel, petrochemical, construction, shipbuilding and maritime shipping industries since October. Key economic officials decided at a Tuesday meeting to focus especially on shipbuilders and maritime shippers, which have been hit particularly hard by the worsening climate.
Hyundai Merchant Marine and Hanjin Shipping both opted for creditor-led workouts to rebuild their businesses. Hyundai Merchant Marine, which filed the necessary paperwork first, plans to lower charter rates and restructure its debt under major creditor Korean Development Bank.
Daewoo Shipbuilding & Marine Engineering, which has suffered a massive operating loss due to an accounting scandal and other factors, has also drawn up a voluntary restructuring plan, including additional layoffs, changes in its pay scheme and cost cuts. Industry leader Hyundai Heavy Industries is considering laying off 3,000 people, or about 10% of its staff.