The Korean economy continued to achieve positive growth in the third quarter of 2022, with its gross domestic product (GDP) growing by 3.1% from a year earlier in spite of the risks stemming from the Russia-Ukraine crisis and global supply chain bottlenecks. The growth was fueled by pent-up demand, which softened weak exports. However, GDP growth slowed to 0.3% in the July – September period compared to three months earlier, marking the lowest growth since the third quarter of 2021.
Consumer spending held up strongly. Private consumption rose by 5.9% year on year in the third quarter of 2022 thanks to eased COVID-19 restrictions, although quarterly growth moderated to 1.9%. There was an uptick in spending on durable goods including cars, and services such as lodging and dining, leisure, travel, and entertainment.
Equipment investment increased by 5.0% compared to three months before and by 1.3% compared to a year before, helping to shore up the overall economy. There was a resilient recovery in investment spending on both machinery and transportation equipment despite interest rate hikes amid growing concerns over inflation. Construction investment grew by 0.4% compared to three months earlier, as investment spending on non-residential building construction rebounded.
Exports improved to a growth of 1.0% quarter on quarter after a contraction in the previous three-month period. Although Korea saw its semiconductor exports fall, there was an increase in service exports and outbound shipments of transportation equipment. Imports also bounced back, growing by 5.8% quarter on quarter due to increased imports of crude oil and machinery. Compared to a year earlier, exports and imports rose by 4.6% and 7.7%, respectively.
The Korean economy is faced with growing headwinds such as high inflation, rapidly rising interest rates, a slowing Chinese economy, and supply chain issues amid heightened macro-economic uncertainty from the protracted war between Russia and Ukraine. Given these challenges, growth prospects for Korea have been adjusted recently. In October 2022, the International Monetary Fund (IMF) lowered Korea’s 2023 growth outlook to 2.0% from its previous projection of 2.1% in July, while it raised its 2022 growth projection for the country to 2.6% from 2.3%. The IMF also projected Korea’s inflation to be 5.5% in 2022 and 3.8% in 2023.