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After contracting in the final quarter of 2022, South Korea’s economy dodged a recession by rebounding in the first quarter of this year. Gross domestic product (GDP) expanded 0.3% from the previous quarter, data from the National Statistics Office showed.
The global economic slowdown along with sinking exports and weak private consumption had caused South Korea’s economy to contract. But the economy seems hopeful after the recent data.
“Given consumption for leisure and tourism services was particularly strong, we think the reopening boost has continued,” writes ING’s Senior Economist, South Korea and Japan, Min Joo Kang. Private consumption was up 0.5% compared to the last quarter.
Also exports rebounded – after falling 4.6% in Q4 2022, they rose 3.8% in the January-March period.
However, exports in March were down 13.6% from the previous year. Especially the weak demand for semiconductors – the largest export item – weighed on the figures. Semiconductor exports dropped 34.5% in March due to declining prices of memory products and weak demand for IT products.
South Korea has become increasingly reliant on exports, with the government calling the sector “lifeblood” of the economy.
Can South Korea grow further in 2023?
South Korea’s central bank Bank of Korea (BOK) is expecting a recovery in the IT sector and the Chinese economy in the next months and subsequently the economy to pick up in the second half of the year.
China is South Korea’s largest trading partner, it relies on the country for key imports such as batteries and semiconductors. “China’s reopening should have a positive impact on Korea’s growth from 2H23 when China’s construction cycle is expected to improve more meaningfully and as more Chinese tourists return to Korea,” opines ING’s Kang.
The central bank had previously projected South Korea’s GDP to grow by 1.6% this year, while the International Monetary Fund expects it to grow by 1.5 %.
However, the BOK later mentioned the possibility of a weaker growth since the central bank kept interest rates stable for the second consecutive meeting in a row.
“We expect the BOK will strengthen its hawkish stance over the next few meetings. That said, given the slowdown in inflation, we don’t expect the BoK to deliver another rate hike,” writes Kang.
