Korea’s GDP Growth in the Fourth Quarter of 2022
The Korean economy managed to post positive growth in the fourth quarter of 2022, with its gross domestic product (GDP) growing by 1.4% from a year earlier. The growth was led by an increase in both public and private spending. Equipment investment growth also supported GDP expansion.
For the whole year of 2022, GDP growth came in at 2.6%, representing a year-on-year decline of 1.5%p. The economy saw its fourth-quarter GDP shrink by 0.4% compared to three months earlier due to sluggish exports, marking a weak end to the year. It was the first time the economy contracted since the second quarter of 2020.
After some recovery fueled by pent-up demand in the second and third quarters, consumer spending declined by 0.4% in the final quarter of 2022 compared to the previous three months because rising interest rates and high inflation hurt consumption. Spending on durable goods fell as demand for moving homes decreased due to a housing market slump.
Equipment investment increased by 2.3% compared to three months before and by 6.6% compared to a year before, helping to shore up the overall economy. There was a resilient recovery in investment spending on machinery despite interest rate hikes amid lingering concerns over inflation. Construction investment grew by 0.7% compared to three months earlier thanks to a rise in investment spending on non-residential building construction.
Exports fell by 5.8% between October and December compared to the July – September period, which was a major blow to the economy. This dismal export performance had to do with weakening global demand, which signals a global economic slowdown. In particular, there was a decrease in demand for Korea's key export items, such as semiconductors and chemical products. Compared to a year earlier, exports fell by 4.4% as global economic recovery momentum weakened amid Russia’s war on Ukraine, monetary tightening across the world and Chinese economic troubles driven by the COVID-19 pandemic.
There is a growing possibility that the Korean economy could slip into a mild recession in 2023 due to weakening exports and consumer spending, which are two major growth drivers. Considering the economy is heavily dependent on exports, its growth outlook is bound to be worsening because the global economy is slowing down amid supply chain disruptions, elevated inflation, and a faltering Chinese economy.
The Ministry of Economy and Finance projects Korea’s GDP growth for 2023 at 1.6%, which is lower than the Bank of Korea's forecast of 1.7%. According to the OECD’s outlook, the Korean economy is expected to grow by 1.8% in 2023, which compares to the IMF’s projection of 1.7% and Fitch’s 1.5%.