Construction shrank 0.8 percent over the three months through June compared with the prior quarter, the third drop in four quarters, and 0.5 per cent from a year ago, according to gross domestic product data released today by the Bank of Korea.
The decline contrasts with a quarterly growth rate for gross domestic product of 1.5 per cent, which bolstered the case for the central bank to continue raising interest rates. Concern about economy-wide inflation pressures outweighed risks from falling house prices when the bank increased its benchmark this month to 2.25 percent from a record-low 2 percent.
“Policy makers can’t stop raising interest rates just because the construction sector is in trouble, which was already doing badly when rates were at a record low,” said Lee Sung Kwon, an economist at Shinhan Investment Corp. in Seoul. “The government is seeking measures to support the industry, but it’ll be difficult to find a good solution unless homebuyers’ sentiment improves.”
The 36-member Korea Construction Index of stocks fell 0.4 percent today after the data were released, compared with a 0.6 percent gain in the benchmark Kospi index. The building gauge has tumbled 18 percent this year, while the Kospi has risen 5.1 percent.
