Q2 Economic Growth Rate Holds at 0.7%... 'Exports and COVID-19' Warning Signs (Comprehensive)

Exports Plunge While Private and Government Consumption Rise
Achieving Target with 0.3% Growth in Q3 and Q4
However, Concerns Over Exports and COVID-19 Increase in Second Half
"COVID-19 is the Biggest Variable... Target Significance Decreases"

In the second quarter of this year, the South Korean economy grew by 0.7% compared to the previous quarter. Although exports sharply declined due to the Ukraine crisis and global supply chain disruptions, private consumption increased after the lifting of social distancing measures, resulting in a higher growth rate than initially expected. However, with the increasing possibility of a global economic recession and the resurgence of COVID-19, there are analyses suggesting that growth could significantly slow down in the second half of the year.

On the 26th, the Bank of Korea announced that the real gross domestic product (GDP) growth rate for the second quarter of this year (preliminary figure, quarter-on-quarter) was 0.7%. Quarterly growth rates recorded negative figures in the first quarter (-1.3%) and second quarter (-3.0%) of 2020 when COVID-19 spread, but have maintained growth for eight consecutive quarters from the third quarter of 2020 through the second quarter of this year.

In the second quarter, private consumption and government consumption led growth despite a significant decrease in exports. Following the lifting of COVID-19 social distancing measures, consumption of semi-durable goods such as clothing and footwear, as well as services including food, accommodation, entertainment, and culture, increased, resulting in a 3.0% rise in private consumption. This is the largest increase in one year since the second quarter of last year (3.3%). Government consumption also increased by 1.1%, mainly due to social security in-kind benefits.

However, exports decreased by 3.1% in the second quarter, turning negative for the first time in a year since the second quarter of last year. China’s lockdowns of major cities to curb COVID-19 spread and supply chain instability caused by the Ukraine crisis led to a larger decline in exports, especially in chemical products and primary metal products. Imports decreased by 0.8%, mainly due to reductions in crude oil and natural gas.

Regarding the contribution to GDP growth, net exports fell from 1.7 percentage points in the previous quarter to -1.1 percentage points, while domestic demand rose from -1.1 percentage points to 1.8 percentage points. This means that net exports eroded the growth contribution of domestic demand. Within domestic demand, consumption significantly increased from -0.2% to 1.6% due to the rise in face-to-face activities following the easing of quarantine measures.

Hwang Sang-pil, Director of the Economic Statistics Bureau at the Bank of Korea, is explaining the main features of the real Gross Domestic Product (preliminary) for the second quarter of 2022 at the Bank of Korea in Jung-gu, Seoul on the 26th.
[Image source=Yonhap News]

With the second quarter growth rate coming in higher than initially expected, the Bank of Korea exceeded its first-half growth target of 2.8%, achieving 2.9%. However, many forecasts suggest that it will be difficult to meet the full-year growth target of 2.7% as a global economic recession may intensify. The slowdown in major economies such as the U.S. and China is likely to further shrink South Korea’s exports, and with daily new COVID-19 cases approaching 100,000, private consumption is also expected to deteriorate. Real gross domestic income (GDI) also decreased by 1.0% in the second quarter due to worsening terms of trade despite GDP growth.

Hwang Sang-pil, head of the Economic Statistics Department at the Bank of Korea, said, "If we arithmetically calculate growth of 0.3% in both the third and fourth quarters, the Bank of Korea’s forecast of 2.7% for this year could be achieved. However, there are concerns about worsening consumer sentiment due to high inflation and the spread of COVID-19, and external uncertainties such as exports remain high."

Kang Sung-jin, professor of economics at Korea University, explained, "Exports are unlikely to improve, so the biggest variable is the spread of COVID-19, which affects private consumption. Even if growth reaches 2.7% this year, it is a lowered target from previous forecasts, so it is hard to say that the growth goal has been achieved."

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