South Korea’s economy shrank last quarter – the first time it has shrunk since the start of the coronavirus pandemic – as exports were hit by the global economic slowdown.
Gross domestic product fell 0.4 percent in the October-December period from the previous quarter, the Bank of Korea said Thursday, in line with analysts’ estimates. The economy still grew by 1.4 per cent. from the previous year.
Exports fell 5.8 per cent, and private consumption fell 0.4 per cent. from quarter to quarter, while public consumption increased by 3.2 per cent. Still, the economy grew 2.6 percent in 2022 from a year earlier.
Finance Minister Choo Kyung-ho played down the weak data as part of a global trend and pledged to provide financial support to exporters, including tax breaks.
“The government will focus policy resources on reactivating exports and investment, such as pushing ahead with deregulation efforts and offering tax and financial support,” Choo told a meeting of officials.
The data from the export-led economy provides an early insight into the state of the world economy, with global demand for Korean exports such as semiconductors, steel and ships slowing in the face of higher interest rates and inflation.
Economists expect the BoK to quarter-point its key interest rate hike to 3.5 percent earlier this month to mark the end of its 17-month tightening cycle and consider starting a rate cut later this year.
“We maintain our 2023 growth forecast below the consensus of 1.3 percent. This should keep (the central bank) on track for a 25 (basis point) cut in the (fourth quarter) of 2023,” said Bum Ki-son, economist at Barclays. in a memo Thursday.
But economists also expect Asia’s fourth-largest economy to bounce back in the current quarter, helped by China’s reopening from Covid-19 restrictions.
“While we see a tailwind, a quick turnaround in exports is unlikely,” Bank of America economists said in a note before the data was released. “What Korea ultimately needs is China’s final external demand to come on strong to benefit Korea’s intermediate good exports.”