Korea’s economy grew at the slowest pace in three years due to lackluster private consumption as well as slowdowns in facility investment and construction, the Bank of Korea said Tuesday.

According to the BOK report, the nation’s gross national income increased 2.6 percent on-year in 2012 as terms of trade improved. Per capita GNI stood at $22,708 last year, up from $22,451 in 2011.

Growth of Korea’s gross domestic product stood at 2 percent in 2012 as initially expected, as the three main economic indices in manufacturing, construction and services continued to show weak performances.

In particular, construction, one of the country’s main growth drivers, suffered negative growth for the third straight year, posting minus 1.6 percent in 2012.

Services growth slowed to 2.5 percent from 2.6 percent in 2011, and manufacturing weakened on low facility investment with its growth standing at 2.2 percent from 7.3 percent, well below the economical and psychological threshold of 7 percent, according to the central bank’s national accounts.

Annual export growth at 4.2 percent, albeit strong considering the global slowdown, was not enough to boost the country’s low overall growth. Last year’s 4.2 percent was almost half of export growth in 2011.

“Continuous downturn in facility investment and construction with sluggish consumer spending led to a slowdown,” said Jung Young-taek, director at the Bank of Korea.

Consumption, the key sustainer of economic growth, continued to dwindle as households, especially the mid-income groups, tightened their spending amid financial hardships.

Increased state spending, which grew 3.9 percent in 2012 from 2.1 percent the year earlier, barely made up the consumption gap, with private spending rise reaching 1.7 percent, down from 2.4 percent in the same period.

Meanwhile, the Bank of Korea revised up Korea’s economic performance in 2011 to 3.7 percent, up from its earlier estimation of 3.6 percent.

The central bank, which recently froze its key base rate at 2.75 percent for the fifth straight month, lowered Korea’s growth outlook to 2.8 percent in 2013 from the initial 3.2 percent predicted in October 2012.

BOK Governor Kim Choong-soo said that it expects the local economy to improve on the back of recovery in the U.S., although uncertainties remain as the U.S. is undergoing across-the-board spending cuts, while the eurozone still struggles from debt crises.

Market analysts expect the central bank is likely to keep its key interest rate unchanged throughout the year, and raised the possibility of a rate hike rather than a reduction as increased public spending is expected to fuel inflation going forward.

Governor Kim, although stressing the importance of a policy mix with the new administration which puts priority on job growth over GDP growth, recently defended the central bank’s rate decision, reiterating that the global economy will improve this year.

Meanwhile, the report said the nation’s gross savings rate stood at 30.9 percent in 2012, down from 31.6 percent in 2011 and the lowest in three years.

By Park Hyong-ki (hkp@heraldcorp.com)