South Korea’s second-quarter gross domestic product (GDP) experienced a faster growth rate, with a 0.6 percent increase compared to the previous quarter. The Bank of Korea (BOK) revealed this data, which indicates a recession-type growth for the country. The rise in net exports was primarily driven by a steeper drop in imports compared to exports. Import figures saw a significant decline of 4.2 percent during the April-June period as demand for crude oil and natural gas weakened. Additionally, exports dipped by 1.8 percent due to reduced demand for transport services and oil products.
In terms of domestic consumption, private consumption, a key driver of the export-oriented economy, contracted by 0.1 percent in the second quarter after a 0.6 percent increase in the first quarter. The BOK highlighted that consumption decreased specifically in the lodging and eatery sector, indicating a reduced impact from the lifting of COVID-19 measures.
Fiscal spending also saw a decrease of 1.9 percent compared to the previous quarter, marking the sharpest decline in over 22 years since the fourth quarter of 2000. Construction and facility investments followed suit, slipping by 0.3 percent and 0.2 percent, respectively, during the same period.
Concerns persist regarding the South Korean economy due to ongoing declines in exports and a slump in the real estate market. June marked the ninth consecutive month of a year-on-year decline in outbound shipments. The real estate market has been impacted by higher borrowing costs. The BOK has maintained its policy rate at 3.50 percent since January, following a series of increases over the past 18 months which amounted to 3.0 percentage points.
Earlier this month, the finance ministry revised down the country’s economic growth outlook for this year from 1.6 percent to 1.4 percent, a figure lower than forecasts from the Korea Development Institute (KDI), the International Monetary Fund (IMF), and the Organization for Economic Cooperation and Development (OECD).
In terms of industry performance, seasonally-adjusted production in the construction industry declined by 3.4 percent in the April-June quarter compared to the previous quarter. Additionally, the production in the electricity, natural gas, and tap water sector tumbled by 6.0 percent during the second quarter, while manufacturing and services industries experienced growth rates of 2.8 percent and 0.2 percent, respectively.
Due to worsening terms of trade, real gross domestic income remained unchanged in the second quarter compared to the previous quarter.
Overall, South Korea’s second-quarter GDP growth showed signs of resilience, primarily driven by a sharper decline in imports than exports, which boosted net exports. However, concerns regarding the economy persist due to continued export declines and challenges in the real estate market, making it crucial for policymakers to monitor and address these issues.
