Korea’s GDP Growth in the First Quarter of 2023
The Korean economy narrowly avoided a recession by showing slight growth in the first quarter of 2023. However, the future outlook is uncertain due to sluggish exports caused by a slowing global economy despite China’s reopening.
Korea’s gross domestic product (GDP) grew by 0.3% in the first three months of 2023 compared to the previous three-month period. This increase is considered to be a mere technical rebound following a contraction of 0.4% in the final quarter of 2022. In other words, the modest growth may not necessarily indicate a sustained or robust recovery, but rather a bounce-back from the previous contraction.
The main contributor to the first-quarter GDP growth was private consumption, which increased by 0.5%. Compared to the same period of the previous year, consumer spending and government spending grew by 4.5% and 3.9%, respectively.
On the other hand, equipment investment had a negative impact on economic growth in the January – March period. It decreased by 4% compared to three months before primarily because of a reduction in investment spending on machinery. Meanwhile, construction investment grew by 0.2% quarter over quarter thanks to a rise in investment spending on building construction.
Exports of goods and services showed improvement, growing by 3.8% compared to the previous quarter, after decreasing by 4.6% in the fourth quarter of 2022. Similarly, imports also experienced growth, rising by 3.5% compared to the previous quarter, recovering from a decrease of 3.7% in the fourth quarter of 2022.
In 2023, Korea's export sector, which contributes approximately 38% to the country's GDP, is anticipated to encounter ongoing challenges. These difficulties stem from the sluggish growth in the United States and European Union, as well as the deceleration in the global electronics cycle. These factors are expected to exert pressure on the country’s export-oriented industries and may hinder their growth prospects throughout the year.
In response to rising inflationary pressures observed since late 2021, the Bank of Korea has implemented a series of monetary policy tightening measures, raising the base interest rate to 3.5%. Starting from August 2021, there has been a rise of 300 basis points in the rate. In May 2023, the central bank held the base rate steady at 3.5% for a third consecutive meeting in the face of conflicting risks from high inflation, a cooling economy and elevated financial uncertainty.