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The Korean economy grew at its slowest pace in six years in 2018 due to a sharp fall in construction and facilities investment.
The Bank of Korea (BOK) reported Tuesday that the nation's GDP grew 2.7 percent last year, a major setback from the previous year's 3.1 percent expansion.
It was the lowest figure since 2012 when the economy grew only 2.3 percent.
The key culprit behind the poor performance was mainly companies slashing investment amid worsening business conditions caused by the government's economic policies, such as the rapid hikes in the minimum wage.
Construction investment contracted 4 percent, its worst performance in 20 years since the 1997-98 Asian currency crisis, while facilities investment dropped 1.7 percent, the worst figure since 2008.
What is of more concern is that the situation is likely to only worsen down the road.
Sung Tae-yoon, an economist at Yonsei University, expects that corporate investment will continue to fall, citing government policy on the minimum wage hike.
"Economic conditions will continue to take a turn for the worse, primarily due to reduced investment. The government should promptly roll out and implement new measures to address and remedy the current situation constraining businesses," he said.
"The government should create an environment that encourages employers to hire and expand their businesses. Economic growth will have clear limitations unless the private sector creates jobs."
In the fourth quarter alone, the economy grew 1 percent from the same period a year earlier thanks to the government's expansionary fiscal policy.
This helped the country achieve an annual growth rate of 2.7 percent in 2018 in line with an earlier estimate revised down from 2.9 percent last October.
The figure, better than the market expected, followed an increase in government expenditure of 3.1 percent in the fourth quarter, the highest since the first quarter of 2010 immediately after the global financial crisis.
"The delayed government spending resumed after new public officials took office following the local elections on June 13, 2018," Park Yang-su, BOK Economic Statistics Department director general, said at a press briefing.
"The budget was spent on various projects including social overhead capital (SOC) in the fourth quarter."
In the fourth quarter, construction investment expanded by 1.2 percent, while facilities investment grew 3.8 percent, driven by an increase in transportation equipment. Exports contracted by 2.2 percent, led by a drop in semiconductor sales.
Also helping was increased expenditure on cultural activities and goods, and healthcare benefits, partly buoyed by the "work-life-balance" government policy including reducing the workweek to 52 hours per week from the previous 68.
"The expanded state healthcare boosted consumption in the medical sector. A moderate recovery in consumer confidence also played a part."
Park stressed that continued efforts toward structural reform are required rather than relying only on temporary government fiscal policy.
"The government short-term policy can do little other than relieve the situation. The stopgap measure is not a fundamental solution to improving the country's financial health. A dual-track approach must be pursued to improve competitiveness of the country's economy," he added.
Park said Korea's growth for 2019 will hinge on developments in the ongoing U.S.-China trade dispute.
The central bank said the real gross national income (GNI) is estimated to have surpassed $31,000 per capita in 2018 for the first time. The figure was $29,745 in 2017.
