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Korea GDP Q2 2023

Korea: GDP grows at fastest rate since Q4 2021 in the second quarter

According to a preliminary reading, GDP growth ticked up to 0.6% on a seasonally adjusted quarter-on-quarter basis in the second quarter, from 0.3% in the first quarter. Q2’s reading marked the best result since Q4 2021, despite being slightly below market expectations.

The stronger reading was largely due to lower imports of goods and services, which contracted 4.2% in Q2 (Q1: +4.2% s.a. qoq), the largest fall since Q2 2020. In addition, fixed investment declined at a milder rate of 0.1% in Q2, from the 0.7% decrease logged in the prior quarter.

Elsewhere, the economy weakened. Private consumption fell 0.1% in the second quarter, which contrasted the first quarter’s 0.6% expansion. Public consumption dropped at the sharpest pace since Q1 2023, contracting 1.9% (Q1: +0.4% s.a. qoq). Finally, exports of goods and services deteriorated, shrinking 1.8% in Q2 (Q1: +4.5% s.a. qoq).

On an annual basis, economic growth was steady at 0.9% in Q2, after the previous period’s 0.9% expansion. Q2’s reading marked the worst reading since Q4 2020.

Heading into Q3, the economy is projected to keep growing in both year-on-year and quarter-on-quarter terms, but at a weaker pace than in Q2. The Bank of Korea is yet to lower its policy rate, maintaining pressure on domestic demand. Moreover, China’s recovery from Covid-19 remains anemic, hurting merchandise exports, which fell 16.4% year on year in July.

Analysts at the EIU said:

“The strong headline growth figure in the second quarter is misleading, as it fails to reflect dwindling domestic demand. As we expect the BOK to retain a hawkish approach before 2024, keeping its policy rate unchanged at 3.5%, elevated borrowing costs will continue to curb household spending and business investment. Although we expect exports to bottom out in the second half of this year, the scale of the recovery will be tepid, owing to slowing economic growth in the US, China and Europe.”

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