GDP Increased in Q2 but Income Shows 'Negative Growth' for the First Time in 9 Months... "Lower in the First Half, Difficult Situation" (Comprehensive)

Private Consumption Down 0.1% · Government Consumption Down 2.1%

In the second quarter of this year, imports decreased more significantly than exports, resulting in South Korea's real gross domestic product (GDP) growing by 0.6%, thereby avoiding negative growth. Real gross national income (GNI), adjusted for price factors amid worsening terms of trade, declined by 0.7% compared to the first quarter. With consumption contracting in the second quarter, pent-up consumption (delayed consumption resumption due to COVID-19) weakening, and China's economic recovery sluggish, there is analysis suggesting that the government's forecast of a "lower first half and higher second half" growth may be difficult to achieve.

Second Quarter Growth Rate 0.6%... Same as Preliminary Estimate

The Bank of Korea announced on the 5th that the real GDP growth rate for the second quarter of this year (provisional figure, quarter-on-quarter) was 0.6%, the same figure as the preliminary estimate released on July 25 (0.6%).

Quarterly growth rates recorded positive growth for nine consecutive quarters from the third quarter of 2021 (2.3%) through the first quarter (0.7%), second quarter (0.8%), and third quarter (0.2%) of last year, before turning negative in the fourth quarter of last year (-0.3%) due to a sharp decline in exports. However, this year, growth has continued consecutively in the first quarter (0.3%) and the second quarter.

Breaking down the second quarter growth rate by sector, all areas except facility investment contracted. Private consumption decreased by 0.1%, centered on semi-durable goods such as medical supplies and footwear, and services such as food and accommodation. Government consumption fell by 2.1%, mainly due to social security in-kind benefits such as health insurance benefits, and construction investment declined by 0.8% due to sluggish civil engineering construction. Facility investment increased by 0.5%, with machinery rising despite a decrease in transportation equipment.

Exports decreased by 0.9%, as increases in semiconductors and automobiles were offset by declines in petroleum products, while imports dropped significantly by 3.7%, mainly due to crude oil and natural gas.

Compared to the preliminary estimate, growth rates for government consumption (-2.1%) and construction investment (-0.8%) were revised downward by 0.1 and 0.5 percentage points respectively, while facility investment (0.5%), exports (-0.9%), and imports (-3.7%) were revised upward by 0.7, 0.9, and 0.5 percentage points respectively.

Regarding contributions to GDP growth, net exports increased to 1.4 percentage points. With consumption slowing, net exports helped lift the second quarter growth rate.

Nominal GNI in Second Quarter Decreased 0.2% from First Quarter... Third Decrease in a Row

The nominal gross national income (GNI) in the second quarter was 565.7 trillion won, down 0.2% from the first quarter. This marks the third decrease in nominal GNI since the third quarter of last year (-0.3%). Nominal net primary income from abroad fell significantly from 19.3 trillion won to 13.7 trillion won, underperforming the nominal GDP growth rate (0.9%).

Real GNI, adjusted for price factors, was 473.6 trillion won, down 0.7% from the first quarter. The decline in real GNI, despite real GDP growth (0.6%), was due to a decrease in real net primary income from abroad from 14.9 trillion won to 10.3 trillion won and a deterioration in terms of trade, which expanded real trade losses to 34 trillion won.

Choi Jeong-tae, Director of the National Accounts Department at the Bank of Korea, explained the GNI decline: "The implementation of the non-inclusion system for dividends from overseas subsidiaries led to increased dividends, making the first quarter's nominal net primary income from abroad the highest ever, and the second quarter the second highest, but due to the base effect, it decreased compared to the previous quarter. Another factor was the worsening terms of trade, as import prices rose more than export prices." He added that the price of semiconductors, South Korea's main export product, fell more sharply than crude oil prices, negatively impacting terms of trade.

Regarding future GDP prospects, Director Choi said, "Consumption in the Korean economy is gradually recovering, and export sluggishness is easing, so growth is expected to improve gradually. However, downside risks such as weakening domestic pent-up consumption, slow economic recovery in China, and concerns over additional tightening in the U.S., as well as upside factors like the influx of Chinese group tourists and a soft landing of the U.S. economy, coexist, creating significant uncertainty."

Professor Kim Young-ik of Sogang University Graduate School of Economics stated, "Recent industrial activity trends show declines in production, especially consumption, and facility investment is also decreasing, so the economic growth rate in the third quarter is expected to be lower than in the second quarter. With real income decreasing, the likelihood of increased consumption in the future is low, and consumer sentiment is gradually weakening, making it difficult for the government to achieve its forecast of a 'lower first half and higher second half' growth."

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