Bank of Korea Revises Q2 Growth Rate from 0.7% to 0.8%... "Higher Possibility of Achieving 4%" (Comprehensive Report 2)

Bank of Korea 2021 Q2 National Income (Preliminary)

Q2 Growth Rate 0.8%... Revised Upward by 0.1%P from Preliminary Estimate

Nominal Growth Rate at 1.9%, Real GNI at 0.1%, Falling Short of Real Growth Rate

Private Consumption Increased by 3.6%... Largest Increase in 12 Years

BOK: "Impact of 4th COVID-19 Wave Limited, Export Recovery Continues... Higher Possibility of 4% Growth"

[Asia Economy Reporters Eunbyeol Kim, Sehee Jang] The real Gross Domestic Product (GDP) growth rate for the second quarter of this year was preliminarily estimated at 0.8%. This is an upward revision of 0.1 percentage points from the preliminary figure (0.7%) announced in July, bringing it closer to the Bank of Korea's annual growth target of 4.0%. This was largely due to the remarkable growth in services and domestic demand, with private consumption in Q2 showing the largest increase in 12 years before the start of the 4th COVID-19 wave. The key issue for Q3 is how much the Korean economy will be affected by the 4th wave, but the Bank of Korea expects the consumption shock from the 4th wave to be limited and the export recovery trend to continue.

On the 2nd, the Bank of Korea announced the '2021 Q2 National Income (Preliminary)' and revised the Q2 GDP growth rate upward from 0.7% to 0.8% quarter-on-quarter. The nominal GDP growth rate, which reflects prices, remained at 1.9%, the same as in Q1. However, the real Gross National Income (GNI), which adds overseas income to GDP, increased by only 0.1%, falling short of the real economic growth rate. This was because exports decreased and imports increased, preventing economic growth from translating into income growth.

The upward revision of the GDP growth rate was due to stronger-than-expected domestic demand recovery. Private consumption increased by 3.6% as sales of durable goods such as clothing rose and consumption of services like entertainment, culture, food, and accommodation increased. This is the largest increase in 12 years since Q2 2009 (3.6%). Government consumption rose by 3.9% as health insurance benefit expenditures increased due to a surge in postponed health checkups. The growth rate of the service sector also expanded significantly to 2.1%, up from 0.7% in Q1.

On the other hand, exports decreased by 2.0%, centered on automobiles and liquid crystal displays (LCDs), while imports increased by 2.8%, driven by primary metals and chemical products. As exports fell and imports rose, the contribution of net exports to growth was negative (-1.7 percentage points). Facility investment (1.1%) and construction investment (-2.3%) were revised upward compared to the preliminary figures.

With the upward revision of the Q2 economic growth rate, the possibility of achieving this year's growth target has also increased. Shin Seung-chul, Director of the Bank of Korea's National Accounts Department, said, "To achieve an annual growth rate of 4.0%, the growth rate for Q3 and Q4 needs to be 0.6% quarter-on-quarter," adding, "The possibility of achieving 4% growth has increased." Shin also noted, "Looking at the July indicators, the negative impact is concentrated only in industries such as restaurants and cultural entertainment," and "The negative impact of the 4th wave is expected to be less than in previous spread phases."

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, also stated on social media (SNS) that "We have taken one step closer to achieving the growth target," and evaluated that "Among the eight advanced countries within the world's top 10 economies, Korea's recovery speed is the fastest." However, Hong emphasized, "We are seriously concerned that the economic improvement trend may not continue into the second half," citing "the worrying impact of strengthened quarantine measures and the growing limits of support for self-employed and small business owners."

The inflationary trend was also confirmed in the GDP indicators. The GDP deflator, which shows the overall price level of the country, rose by 1.6% in Q2. The domestic demand deflator, which is heavily influenced by consumer prices, jumped significantly to 2.8% compared to 1.4% in the previous quarter.

This content was produced with the assistance of AI translation services.