The Economy Sustained by Consumption in Q2... Growth Rate at 0.7%, Same as Preliminary Figure

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] Due to the Ukraine crisis and supply chain disruptions, exports have decreased, resulting in South Korea's economy growing by 0.7% in the second quarter compared to the previous quarter. Although the figure performed better than expected due to increased private consumption, concerns over a global economic recession have grown recently, and future growth is expected to slow down.

On the 1st, 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%. This is the same figure as the flash estimate (0.7%) released on July 26.

The quarterly growth rates recorded negative figures in the first (-1.3%) and second (-3.0%) quarters of 2020 when COVID-19 occurred, followed by 2.3% in the third quarter, 1.2% in the fourth quarter, and 1.7%, 0.8%, 0.2%, and 1.3% in the first to fourth quarters of last year, respectively. This year, the economy maintained growth for eight consecutive quarters, recording 0.6% in the first quarter and 0.7% in the second quarter.

Looking at the second quarter growth rate by sector, private consumption increased by 2.9%, centered on semi-durable goods such as medical supplies and footwear, as well as services including entertainment, culture, food, and accommodation. Government consumption increased by 0.7%, mainly due to social security in-kind benefits.

Construction investment rose by 0.2%, with building construction increasing despite a decline in civil engineering construction. Facility investment increased by 0.5%, as machinery increased despite a decrease in transportation equipment.

While consumption increased, exports significantly decreased. This marked a negative turnaround for the first time in a year since the second quarter of last year. Exports decreased by 3.1%, mainly in chemical products and primary metal products, and imports decreased by 1.0%, mainly in crude oil and natural gas.

Compared to the flash estimate, private consumption (-0.1 percentage points), government consumption (-0.4 percentage points), and construction investment (-0.4 percentage points) were revised downward, while facility investment (+1.5 percentage points) was revised upward. The Bank of Korea explained that the figures were adjusted by reflecting some actual performance data from the final month of the quarter, which was not available during the flash estimate calculation.

Regarding the contribution to GDP growth, net exports fell from 1.7 percentage points in the previous quarter to -1.0 percentage points, while domestic demand rose from -1.1 percentage points to 1.7 percentage points. This means that although consumption increased due to the easing of quarantine measures, the sharp decline in exports pulled down the growth rate.

Growth rates by industry were ▲Agriculture, Forestry, and Fisheries -8.7%, ▲Manufacturing -0.7%, ▲Construction -0.1%, and ▲Services 1.8%. In particular, within agriculture, forestry, and fisheries, livestock and related services decreased sharply by 10.2%, centered on crop farming.

The real Gross National Income (GNI) in the second quarter decreased by 1.3% compared to the previous quarter. Real net primary income from abroad fell from 5.3 trillion won to 4.4 trillion won, and real trade losses widened from 19 trillion won to 28 trillion won due to deteriorating terms of trade, significantly underperforming the real GDP growth rate (0.7%).

The total savings rate was 34.2%, down 1.5 percentage points from the previous quarter. This was because the increase rate of gross national disposable income (1.2%) was lower than the increase rate of final consumption expenditure (3.7%).

In the revised economic outlook announced on the 25th of last month, the Bank of Korea lowered its forecast for this year's real GDP growth rate from 2.7% to 2.6%, a decrease of 0.1 percentage points.

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