Exports Lead and Supplementary Budget Push GDP to 4.0% (Comprehensive Report 2)

Highest Growth Rate in 11 Years
But Lower Than Right After the Foreign Exchange and Financial Crises
Base Effect of Negative Growth in 2020

[Asia Economy Reporter Jang Sehee] Last year, the South Korean economy rebounded with a 4.0% growth. Although it is the best economic performance in 11 years, some evaluations describe it as a "half-growth" because it was driven by the base effect of negative growth in 2020 and supported by fiscal policy and exports. In the fourth quarter of last year, the Gross Domestic Product (GDP) growth rate increased by 1.1% compared to the previous quarter.

According to the "2021 Q4 and Annual GDP Preliminary Report" released by the Bank of Korea on the 25th, South Korea's real GDP rose by 4.0% year-on-year. The 4% growth is the highest since the 6.8% growth in 2010, and the economy has maintained growth for six consecutive quarters from the third quarter of 2020 to the fourth quarter of last year.

However, compared to previous economic crisis periods, the recovery speed is relatively slow. The economic growth rates immediately after the foreign exchange crisis and the global financial crisis in 1999 and 2010 were 11.5% and 6.8%, respectively. Comparing the average annual growth rate for two years after the COVID-19 outbreak (1.5%) also shows it is lower than after the foreign exchange crisis (1998?1999: 2.8%) and the global financial crisis (2009?2010: 3.8%). Professor Kim Sangbong of Hansung University’s Department of Economics stated, "The average growth of about 1.5% over two years after COVID-19 still falls short of the normal level (1.8?2.0%). Ultimately, it seems difficult to avoid criticism that growth was driven solely by exports and fiscal policy."

By sector, exports increased by 9.7% compared to 2020, the year COVID-19 first occurred, and facility investment also rose by 8.3%. Thanks to the supplementary budget effect, private consumption recorded a significant increase of 3.6%, compared to -5.0% in 2020, and government consumption grew by 5.5%. The government’s supplementary budget of 49.8 trillion won last year partially boosted private consumption. The contribution to growth by sector was 3.2 percentage points from the private sector and 0.7 percentage points from the government last year.

Additionally, the growth rate in the fourth quarter of last year was 4.1% year-on-year and 1.1% quarter-on-quarter. Private consumption increased by 1.7% due to higher service consumption in accommodation, food, and transportation. Exports rose by 4.3%, led by semiconductors, coal, and petroleum products, while imports increased by 4.3%, driven by crude oil and chemical products.

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