Q1 GDP Growth Rate at 1.7%... Exports, Investment, and Consumption All Surged Despite Middle East War (Update)

Bank of Korea Releases Preliminary Q1 Real GDP Figures
Growth Exceeds Projection of 0.9%... Highest Quarterly Increase Since Q3 2020

Despite the shock of the Middle East war, all key indicators—exports, consumption, and investment—improved, resulting in South Korea's economy posting a surprise 1.7% growth in the first quarter of this year.

On April 23, the Bank of Korea announced that the preliminary real gross domestic product (GDP) growth rate for the first quarter rose by 1.7% compared to the previous quarter. This significantly exceeds the Bank's February forecast of 0.9% and marks the highest growth rate in five and a half years, since the third quarter of 2020 (2.2%).

This growth is especially notable for surpassing market expectations despite the aftermath of the Middle East war, which began at the end of February. The Korean economy had dipped into negative territory in the first quarter of last year (-0.2%) but rebounded in the second quarter (0.7%) and third quarter (1.3%), raising hopes for recovery. However, it returned to negative growth in the fourth quarter (-0.2%), barely achieving 1% annual growth.

The rise in this quarter's growth rate was driven by across-the-board improvements in exports, private consumption, and investment indicators. In particular, exports showed strong gains centered on semiconductors, while both construction and facility investment shifted into positive territory due in part to base effects, contributing to the overall growth rate.

Exports, led by semiconductors and other IT products, increased by 5.1% compared to the previous quarter. This marks a significant improvement within just one quarter from the negative growth seen in the fourth quarter of last year. Imports of machinery, equipment, and automobiles also rose, leading to a 3.0% increase in total imports.

Domestic demand continued to recover, mainly driven by private consumption, and both construction and facility investment turned upward. Private consumption increased by 0.5% from the previous quarter, with growth in goods such as clothing. Government consumption rose by 0.1%, mainly due to increased spending on goods.

Construction investment increased by 2.8% during the same period, as both building and civil engineering construction expanded. Facility investment also grew by 4.8%, with increases in both machinery and transportation equipment. These figures represent a turnaround from the declines of -3.5% and -1.7%, respectively, in the fourth quarter of last year, returning to growth within just one quarter.

Looking at the contribution by expenditure item for the first quarter, the rebound in exports was particularly notable. The contribution of net exports (exports minus imports) to growth was 1.1%, a reversal from -0.2 percentage points in the previous quarter. Although imports contributed 1.2 percentage points, exports contributed an even larger 2.4 percentage points, boosting overall contribution. The contribution of domestic demand to growth rebounded from 0 percentage points in the fourth quarter of last year to 0.6 percentage points in the first quarter. In particular, the contribution of construction and facility investment rose by 0.3 and 0.4 percentage points, respectively, driving up the domestic contribution. By economic agent, the contribution of private consumption (1.7 percentage points) was higher than that of government consumption (0 percentage points).

By industry, the improvements in manufacturing and construction were clear. Manufacturing increased by 3.9% compared to the previous quarter, led by computers, electronic, and optical devices. The construction sector also grew by 3.9%, with increases in both building and civil engineering. The electricity, gas, and water supply sector grew by 4.5%, mainly due to the water supply and raw material recycling industries. All these sectors returned to growth within one quarter from negative growth in the fourth quarter of last year. The service sector grew by 0.4%, mainly in finance and insurance, culture, and other areas.

Real gross domestic income (GDI) in the first quarter jumped by 7.5% compared to the previous quarter, far outpacing GDP growth.

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