Economic growth largely driven by increased inventory

Economic growth largely driven by increased inventory

Korea’s economic growth was largely fueled by a rise in inventories last year amid a deepening slump in domestic demand and industrial output, with its contribution hitting a five-year high, central bank data showed Thursday.

The contribution of inventory stocks to economic growth reached 1.1 percentage points in 2015, while Asia’s fourth-largest economy expanded 2.6 percent over the period, according to the data compiled by the Bank of Korea.

The figure marked the highest level since 2010, when it hit 3.4 percentage points out of an overall 6.5 percent growth.

The GDP accounts cover production and sales, with an inventory glut included in production during a certain period.

Experts noted that an increase in inventory contributions is derived from lackluster consumption, reflecting weakening domestic demand and a recession in a business cycle.

The country’s inventory rate reached 129.6 in August last year, the highest since December 2008, while a factory operating rate dropped to a nearly seven-year low of 72.7 percent in November.

“Companies are expected to adjust their inventory levels in the first quarter, leading to a slump in economic growth,” said Kim Jin-myung, an analyst from Hi Investment & Securities Co.

The Korean government frontloaded some 40 percent of its budget in the first three months to slow the possible economic downturn in the face of low oil prices and a slowdown in China, with its growth target for 2015 set at 3.1 percent.

Source:  http://www.koreaherald.com/view.php?ud=20160211000743

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