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.
Korean economy grows 0.6% in Q2 amid plunging imports
A vendor arranges vegetables at a traditional market in Seoul, Monday. Yonhap
By Yi Whan-woo
By Yi Whan-woo
The Korean economy expanded for the second consecutive quarter in the April-June period, as imports shrank at a faster pace than exports, which contributed to a net growth in trade.
Preliminary estimates from the Bank of Korea (BOK) showed, Tuesday, that the nation's gross domestic product (GDP) increased 0.6 percent in the second quarter from the previous three months when it grew 0.3 percent.
The central bank said the back-to-back quarterly growth suggests Asia's fourth-largest economy is on a recovery path after contracting 0.3 percent in the fourth quarter of 2022.
Nevertheless, analysts found Korea's growth trend to be worrisome, as it was driven by a sharp decline in imports and not by the country's twin growth engines ― exports and consumer spending.
The BOK data showed exports slid 1.8 percent, but imports retreated at a much faster rate of 4.2 percent, resulting in a net growth contribution of 1.3 percentage points.
Private spending fell 0.1 percent compared to the first quarter, when it rose 0.6 percent to become the biggest contributor to GDP.
The BOK attributed the decline in private spending in the second quarter to a fall in spending in the service sector, such as restaurants and travel accommodations, despite an end to the COVID-19 emergency.
Government spending also dropped 1.9 percent due to a decline in expenditures on social security benefits, while investments in construction and facilities shrank 0.3 percent and 0.2 percent, respectively.
For the first half of 2023, GDP expanded 0.9 percent from a year earlier to surpass the BOK's 0.8 percent growth estimate announced in May.
The BOK referred to its 2023 growth target of 1.4 percent, and noted that the country's economy will need to advance about 0.7 percent each in the third and four quarters and reach 1.7 percent growth in the second half of the year on a year-on-year basis.
Some economists remained skeptical of Korea achieving the BOK's yearly growth target, saying the expansion led by the steep decline in imports in the second quarter is “witnessed in economies that struggle to gain growth momentum on their own.”
“The Korean economy is anticipated to keep expanding in the next two quarters considering that the end is in sight of global rate hikes, including Korea's, and that demand for goods will increase in return,” said Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI).
“But we still have slower-than-expected spillover effects from China's reopening that can continue to affect Korea's economy, and the growth in the third and fourth quarter, respectively, will not be much different from the second half.”
Speaking on condition of anonymity, a researcher at a commercial bank voiced a similar view, saying “The quarterly growth can be lower than 0.7 percent for each of the two remaining quarters.”