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(3rd LD) S. Korean economy avoids recession in Q1; outlook dims amid weak exports

Economy 16:01 April 25, 2023

(ATTN: ADDS comments by associate economist at Moody's Analytics in paras 10, 16, 19)

SEOUL, April 25 (Yonhap) -- South Korea's economy narrowly avoided a recession in the first quarter of the year after a contraction the previous quarter, central bank data showed Tuesday.

The economy grew 0.3 percent in the January-March period from the previous quarter, according to the preliminary data compiled by the Bank of Korea. The first-quarter expansion follows a 0.4 percent on-quarter contraction the previous quarter.

Technically, two consecutive quarters of economic contraction are judged to be a recession.

On a yearly basis, Asia's fourth-largest economy expanded 0.8 percent in the first quarter, compared with the fourth quarter's 1.3 percent on-year gain.

The rebound in growth came as the country's exports fared well relatively compared with the previous quarter and domestic demand gained traction.

But the economic growth for the year is widely expected to slow down.

The country's outbound shipments have logged an on-year fall since October last year amid aggressive monetary tightening by major economies to curb inflation. It is also the first time since 2020 that exports have declined for six months in a row.

Exports increased 3.8 percent on-quarter in the first quarter, a turnaround from a 4.8 percent drop the previous quarter, according to the data.

But amid a global economic slowdown and waned demand for semiconductors, a key export item for South Korea, the economy may suffer a slowdown due to weak exports.

"Weak global demand and the downcycle in electronics are weighing on goods exports," said Dave Chia, an associate economist at Moody's Analytics.

Private spending advanced 0.5 percent in the first quarter from the previous quarter, and construction investment rose 0.2 percent and government spending edged up 0.1 percent over the cited period.

But facility investment dropped 4 percent, and the service sector suffered a 0.2 percent fall.

The private spending, however, is likely to be weighed down by higher interest rates.

The BOK had delivered seven consecutive hikes in borrowing costs since April last year.

The central bank held its key interest rate steady at 3.5 percent for the second straight time earlier this month as inflation appears to be easing and concerns are rising over an economic slowdown.

"Our baseline view is for the Bank of Korea to have ended its interest rate tightening cycle, preventing high debt servicing charges from rising further. Although goods exports will struggle, services exports will benefit from the rebound in international tourism," Chia said.

Last year, the country's economy grew 2.6 percent, slowing from a 4.1 percent advance the previous year amid aggressive monetary tightening at home and abroad.

The 2022 growth marked the slowest pace since 2020, when the economy contracted 0.7 percent amid the fallout from the coronavirus pandemic.

The Organization for Economic Cooperation and Development projects South Korea's growth outlook for 2023 to be 1.6 percent, and Moody's Analytics forecast 1.4 percent growth.

For the year, the BOK expects a 1.6 percent expansion, and the International Monetary Fund sees a 1.5 percent advance.

The central bank said it may lower its growth estimate for the year due to uncertainties over a recovery in the IT sector and a delay in the much-awaited effect of China's reopening.

"There is a high possibility that our growth projection is slightly lowered," Shin Seung-chul, director general of the BOK's economic statistics division, said.

"But the IT sector's slowdown may soften and China's economic recovery gathers pace in the second half, which will have a positive impact on our economy."

This file photo taken March 21, 2023, shows a port in the southeastern city of Busan. (Yonhap)

This file photo taken March 21, 2023, shows a port in the southeastern city of Busan. (Yonhap)


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