Korea Exports (G&S, ann. var. %)

Exports in Korea

Activity rebounds in Q1

According to a preliminary estimate, GDP bounced back, increasing 0.3% on a seasonally adjusted quarter-on-quarter basis in the first quarter, slightly overshooting market expectations and above the 0.4% contraction recorded in the fourth quarter of last year, amid easing inflation.

Private consumption growth bounced back, expanding 0.5% seasonally adjusted quarter on quarter in Q1 from a 0.6% contraction in Q4. Government consumption growth slowed to 0.1% in Q1 (Q4 2022: +2.9% s.a. qoq). Meanwhile, fixed investment contracted 0.9% in Q1 (Q4 2022: +0.8% s.a. qoq), marking the worst reading since Q1 2022 and likely due to tightening credit conditions.

On the external front, exports of goods and services bounced back, growing 3.8% seasonally adjusted quarter on quarter in the first quarter (Q4 2022: -4.6% s.a. qoq), which marked the best reading since Q1 2021. This came as a surprise given that monthly data for merchandise exports had suggested a plunge; that data was likely heavily affected by the recent tumble in semiconductor prices. In addition, imports of goods and services bounced back, growing 3.5% in Q1 (Q4 2022: -3.7% s.a. qoq).

On an annual basis, economic growth lost momentum, cooling to 0.8% in Q1, compared to the previous quarter’s 1.3%. Q1’s reading marked the slowest expansion since Q4 2020.

Heading into Q2, our panelists expect GDP growth to pick up slightly. Inflation is set to continue falling and the BOK likely reached the end of its hiking cycle in February, boding well for domestic demand. Meanwhile, China’s reopening is likely to support the external sector. That said, the construction sector looks set to weaken amid a downturn in the housing market. In addition, with the gains from supply chains normalizing being eaten up in Q1, automobile exports are unlikely to grow as quickly in Q2. Weak chip demand will add further downward pressure.

Nomura’s Jeong Woo Park commented on the GDP outlook:

“In light of the higher Q1 GDP growth, we raise our 2023 GDP growth forecast to -0.1% y-o-y (from -0.4% earlier). However, underlying demand drivers remain weak, and we expect weaker consumption and a delayed export recovery to lead to a delayed recession start in Q3.”

ANZ’s Krystal Tan said:

“Today’s data suggest South Korea’s economy may have found a floor, but the growth outlook remains challenging amid a combination of weak chip demand and deleveraging households. The likely absence of material fiscal or monetary policy support in the near term will also constrain the pace of recovery, in our view.”