Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Slowdown in exports raises concerns over Korea's growth
By Yi Whan-woo
GDP grows 0.7% in Q2; IMF cuts 2022 growth outlook to 2.3%
By Yi Whan-woo
The Korean economy grew at a faster-than-expected pace in the second quarter of this year, on the back of an increase in private spending. But exports, the key engine for growth, suffered a major setback amid a global slowdown fanning worries that the economy will lose steam in the latter half of this year.
In its preliminary report, Tuesday, the Bank of Korea said the nation's gross domestic product (GDP) grew 0.7 percent during the second quarter from the previous quarter, compared to a 0.6 percent expansion in the January-March period.
It marked the eighth straight quarterly growth since the third quarter of 2020 when it rose 2.3 percent. On a year-on-year basis, the GDP in the second quarter expanded 2.9 percent.
The GDP growth was powered only by a temporary uptick in consumer spending following the lifting of social distancing measures. The spending grew 3 percent, the highest since the second quarter of 2021 and marking a turnaround from the first quarter's 0.5 percent contraction.
However, both exports and facilities investment retreated between April and June. Outbound shipments contracted 3.1 percent on a quarter-on-quarter basis, while facilities investments fell by 1 percent.
If exports continue to slow down, analysts said it will be difficult for the nation's trade-dependent economy to achieve its annual growth target that was slashed to the upper 2 percent range recently due to growing economic uncertainties.
They warned that Asia's fourth-largest economy may suffer a drop in the amount of annual exports this year in the worst case, noting that the ongoing slowdown stems from stagnant growth in China and major trading partners that can still get worse.
“The overall growth rate of exports in 2022 can possibly fall to the minus territory if the unfavorable circumstance goes on,” said Joo Won, deputy director of the Hyundai Research Institute.
What is of particular concern is that the outlook for consumer spending, which was the lone locomotive for the second-quarter growth, remains murky as soaring prices weigh on households and the sub-variant of the COVID-19 Omicron variant is spreading fast.
The BOK speculated the resurgence of the pandemic and runaway inflation can affect consumer spending, although the nation's economy can reach its 2022 growth target of 2.7 percent.
But in its latest world economic outlook, Tuesday, the International Monetary Fund (IMF) revised down its 2022 growth forecast for Korea to 2.3 percent, from 2.5 percent in its previous outlook announced in April.
The IMF also slashed its economic outlook for Korea in 2023 to 2.1 percent from the previous 2.9 percent.
Against this backdrop, Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI), remained cautious about the possibility of Korea reaching its growth target.
He argued that the energy crunch, supply chain disruptions and other global risks heightened by the war in Ukraine are denting the economies of Korea's trading partners.
“Exports are closely connected to the economic situations of those partners and you never can be sure whether our economy will grow as planned unless our partners do well in theirs,” he said.
Korea is anticipated to suffer trade deficits for the fourth consecutive month in July. According to the Ministry of Trade, Industry and Energy, Tuesday, the country's trade deficit totaled $2.47 billion in April, $1.61 billion in May, $2.57 billion in June and $8.12 billion between July 1 and 20.
Such lackluster performance comes as China, the destination for more than a fourth of Korea's entire exports, struggled with the worst COVID-19 spread in the second quarter.
Accordingly, China eked out a GDP growth of 0.4 percent year-on-year in the April-June period, which was far below the market's expectation of 1 percent and also the lowest since the first quarter of 2020 when the country's economy shrank 6.8 percent.