Q2 Our Economy Contracts... Domestic Demand Slump Shock (Update)

Q2 Real Gross Domestic Product (GDP) Growth Rate -0.2%
Weak Domestic Demand... Negative Growth for the First Time in 6 Quarters

[Image source=Yonhap News]

Due to weaker-than-expected domestic demand, South Korea's economic growth rate in the second quarter recorded a negative (-) figure.

On the 25th, the Bank of Korea announced that the preliminary real Gross Domestic Product (GDP) growth rate for the second quarter of this year decreased by 0.2% compared to the previous quarter.

South Korea's economy grew by 0.4% in the first quarter of last year, 0.6% in the second quarter, 0.8% in the third quarter, and 0.5% in the fourth quarter, followed by a surprise 1.3% growth in the first quarter of this year, marking five consecutive quarters of positive growth. This is the first negative growth since the fourth quarter of 2022 (-0.5%), after six quarters.

Looking at the second quarter growth rate by sector, private consumption decreased by 0.2% as service consumption (such as education) slightly increased but goods consumption (such as passenger cars and clothing) was sluggish. Government consumption increased by 0.7%, mainly due to spending on goods. Construction investment declined by 1.1% as both building construction (residential) and civil engineering construction decreased.

Exports increased by 0.9%, centered on automobiles and chemical products, while imports rose by 1.2%, mainly due to crude oil and petroleum products. Facility investment decreased by 2.1% as transportation equipment (automobiles) increased but machinery (such as semiconductor manufacturing equipment) declined.

By expenditure item, the contribution to the second quarter growth rate turned negative for both net exports and domestic demand. The contribution of domestic demand to the second quarter economic growth rate was -0.1 percentage points, turning negative from 0.5 percentage points in the first quarter. The contribution of net exports (exports minus imports) was -0.1 percentage points, marking a negative return for the first time in five quarters since the first quarter of last year (-0.2 percentage points).

By sector, the growth contribution was -0.2 percentage points from the private sector and 0.0 percentage points from the government, indicating that the negative growth in the second quarter was driven by the private sector.

By industry, manufacturing grew by 0.7%, centered on transportation equipment. The electricity, gas, and water supply sector decreased by 0.8% due to declines in water supply, sewage and waste treatment, and raw material recycling industries.

The construction industry fell by 5.4% as both building construction and civil engineering construction decreased. The service industry maintained the previous quarter's level as transportation increased but information and communication, wholesale and retail, and accommodation and food services declined.

The real Gross Domestic Income (GDI) in the second quarter decreased by 1.3%, underperforming the real GDP growth rate (-0.2%).

There are concerns that the domestic demand slump could deepen further. Kim Jeong-sik, Professor Emeritus of Economics at Yonsei University, said, "Although exports are showing strong performance, domestic demand is likely to worsen further," adding, "We expect the economic growth rate in the second half of the year will not be as high as in the first quarter."

Kim Young-ik, Professor at Sogang University Graduate School of Economics, explained, "Since private consumption and facility investment in the first quarter were better than expected, the second quarter likely decreased due to the base effect." However, Professor Kim added, "Although domestic demand was weak, resulting in a low second-quarter growth rate, recent improvements in consumer sentiment suggest there is room for recovery in the second half of the year."

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