South Korea’s economic growth shrank to 2.6 percent last year, the slowest rate since 2012 and down from the previous year’s figure of 3.3 percent, according to figures recently released by the Bank of Korea (BOK).

The backward slip follows a mediocre fourth quarter and the sharpest annual decline in exports since the global financial crisis, boosting widespread worries about the export-driven economy.
In January, the country’s export volume posted the biggest monthly decline in almost seven years – down 18.5 percent year-on-year – a shattering blow for a country whose exports account for roughly half of its Gross Domestic Product.

Last year, Korea’s overseas shipments nose-dived 8.0 percent, the first contraction for three years. The decline forced the BOK to revise its 2016 GDP growth forecast down from 3.2 percent to 3.0 percent. Last year, the South’s economy grew at its slowest pace since 2012.

A host of factors contributed to the export downturn, including the rise of the South Korean won against Japan’s yen, China’s currency devaluations, a high rate of youth unemployment, and declining global oil prices, in addition to an increasingly tense geopolitical environment on the Korean peninsula.

To counter the downslide, the government in Seoul recently unveiled a stimulus package that includes an extra $4.94 billion in public spending that “will mobilize all available means and resources in order to boost domestic consumption and exports in the first quarter to March and to help create new jobs,” the Ministry of Finance said in a press statement.

The package will also include a “front loading” of government budgets and policy loans to businesses over the next three months, injecting an additional $17.4 billion into the economy, and extend until June a program to cut the consumption tax on passenger cars, which expired at the end of December.

The last measure was spurred by a 40 percent drop in domestic auto sales plunged 40 percent in January after Seoul rolled back a 1.5 percentage point cut in auto consumption tax.