Q2 Growth Rate 0.7%... Outlook Reached If No Negative Growth in Second Half (Comprehensive)

Maintaining Growth Amid Export Decline and Consumption
Future Growth Slowdown Expected Due to Global Economic Slowdown Concerns

An information board announcing the event has been installed at Tongin Market in Jongno-gu, Seoul, where the '7-Day Companion Festival,' a consumption promotion event for small and medium-sized enterprises and small business owners, began on the 1st. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Seo So-jeong] With South Korea's economy growing by 0.7% quarter-on-quarter in the second quarter of this year, driven by a recovery in private consumption, attention is focused on whether the Bank of Korea can reach its recently revised growth forecast of 2.6% for this year. Since the second-quarter growth rate exceeded market expectations, the prevailing analysis is that the growth forecast will be comfortably achieved. However, with the prolonged Ukraine crisis and increasing concerns about a global economic recession, the slowdown in growth is expected to accelerate.

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 a negative growth 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, second, third, and fourth quarters of last year, respectively. This year, growth continued for eight consecutive quarters with 0.6% in the first quarter and 0.7% in the second quarter.

Breaking down the second-quarter growth by sector, private consumption increased by 2.9%, centered on semi-durable goods such as clothing and footwear, and services such as 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 civil engineering decreasing but building construction increasing. Facility investment increased by 0.5%, as machinery rose despite a decline in transportation equipment.

While consumption increased, exports turned negative for the first time in a year since the second quarter of last year, sharply declining. Exports decreased by 3.1%, mainly in chemical products and primary metal products, and imports fell 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.

Private Consumption 2.9% · Exports -3.1%... Export Slowdown Expected to Widen

Looking at 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 eased 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% quarter-on-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%). Choi Jeong-tae, head of the National Accounts Division at the Bank of Korea's Economic Statistics Bureau, explained, "The prices of imports such as crude oil rose more sharply than export prices such as semiconductors, expanding real trade losses."

The total savings rate fell by 1.5 percentage points quarter-on-quarter to 34.2%. 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%).

With the second-quarter growth rate exceeding expectations due to increased private consumption, achieving this year's growth target seems possible as long as there is no negative growth in the second half. This is because private consumption is showing a moderate recovery centered on large services with the return to normal life. The Bank of Korea lowered its real GDP growth forecast for this year by 0.1 percentage points from 2.7% to 2.6% in the revised economic outlook announced on the 25th of last month.

Director Choi said, "If the economy grows by 0.1 to 0.2% quarter-on-quarter in the remaining third and fourth quarters of this year, it will be possible to reach the growth forecast of 2.6% for this year. However, due to the prolonged Ukraine crisis and global economic slowdown caused by interest rate hikes in major countries, the export slowdown is expected to widen gradually, weakening the future growth trend of South Korea's economy."

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