GDP grows 0.7% in Q2; IMF cuts growth outlook
By Yi Whan-woo
The Korean economy grew faster than expected in the second quarter of this year, thanks to rising consumer spending.
However, exports, the main driver of growth, have suffered a major setback later this year in the midst of a global slowdown fueling concerns about a slowdown in the economy.
In a preliminary report on Tuesday, the Bank of Korea said gross domestic product (GDP) grew 0.7% in the second quarter, compared to 0.6% growth in the January-March period.
This is the eighth consecutive quarter of growth since it rose 2.3% in the third quarter of 2020. On an annual basis, GDP increased 2.9% in the second quarter.
GDP growth was driven only by a temporary surge in personal consumption following the lifting of social distance expansion measures. Spending increased by 3%, the highest since the second quarter of 2021, indicating that the trend has reversed from the 0.5% decrease in the first quarter.
However, between April and June, both exports and capital investment declined. Shipments fell 3.1% quarter-on-quarter, while fixed investment investment fell 1%.
If exports slow further, analysts say the country’s trade-dependent economy will struggle to reach its annual growth target, which was recently lowered to a cap of 2%, amid growing economic uncertainty increase.
They warn that Asia’s fourth-largest economy could suffer the worst-case decline in annual exports this year, with ongoing slowdowns due to stagnant growth in China and its major trading partners.
Yes, he said it could get worse. “If the disadvantages continue, the overall growth rate of exports in 2022 could be negative,” said Joo Won, deputy director of the Institute for Contemporary Studies.
Of particular concern is the outlook for consumer spending, which was the only driver of growth in the second quarter, as rising prices weigh on households and the rapid expansion of subvariants to the COVID-19 Omicron variant remains.
BOK speculates that a pandemic and a resurgence of runaway inflation could hurt consumer spending, but the country’s economy could reach its 2022 growth target of 2.7%.
However, in the latest global economic outlook on Tuesday, the International Monetary Fund (IMF) has lowered South Korea’s 2022 growth forecast from 2.5% to 2.3% of its previous outlook announced in April.
The IMF also lowered South Korea’s economic outlook for 2023 from the previous 2.9% to 2.1%.
Under these circumstances, Lee So-Hao, head of the economic policy team at the Korea Institute of Economic Research (KERI), remained cautious about the possibility of South Korea achieving its growth goals.
He argued that energy shortages, supply chain disruptions and other global risks exacerbated by the war in Ukraine weigh heavily on the economies of South Korea’s trading partners.
“Exports are closely tied to the economic situation of these partners, and if they don’t go well, we can’t be confident that our economy will grow as planned,” he said.
South Korea is expected to experience a trade deficit for the fourth straight month in July.
According to the Ministry of Trade, Industry and Energy on Tuesday, the country’s trade deficit was $ 2.47 billion in April, $ 1.61 billion in May, $ 2.57 billion in June and $ 2.57 billion in June.
Suffering from the worst spread of COVID-19 in the second quarter of South Korea’s total exports. China’s April-June GDP growth was 0.4% year-on-year, well below market expectations of 1%, the lowest since the country’s economy shrank 6.8% in the first quarter of 2020.
Credit/Source : KoreaTimes