Korea’s GDP Growth in the Second Quarter of 2022

The Korean economy maintained growth momentum in the second quarter of 2022, with its gross domestic product (GDP) growing by 2.9% from a year earlier and by 0.7% from three months earlier. In spite of the risks stemming from the Russia-Ukraine crisis and global supply chain bottlenecks, the economy grew ahead of expectations. This unexpectedly upbeat growth was driven by strong private consumption and government spending, which offset weakening exports.

(Source: Bank of Korea, July 26, 2022)

Thanks to eased COVID-19 restrictions, consumer spending climbed by a healthy 3% in the second quarter of 2022 compared to the previous three-month period. It was the highest growth rate since the second quarter of the previous year. Spending on semi-durable goods including clothes and shoes, and services such as lodging and dining contributed to the overall uptick in consumer spending. On a year-on-year basis, private consumption grew by 4% in the April – June period.

The economy was also stimulated by government spending, which increased by 1.1% compared to three months before and by 4.1% compared to a year before. The increased public spending came after the National Assembly approved a supplementary budget worth KRW 62 trillion weeks after President Yoon took office in early May.

Construction investment recovered from a sharp contraction, growing by 0.6% compared to three months earlier, as investment spending on building construction rebounded. On the other hand, equipment investment decreased by 1% because corporate spending on production facilities sagged due to the fallout from the Russia-Ukraine conflict and interest rate hikes amid growing concerns over inflation. A slowing Chinese economy has also been hampering corporate investment in equipment.  

Exports diminished by 3.1% quarter on quarter, which was the largest drop in two years. In particular, exports of goods such as chemical products and basic metals declined sharply. Imports also fell by 0.8% due to decreased inbound shipments of crude oil and natural gas. However, compared to a year earlier, exports and imports grew by 4.7% and 1.7%, respectively.

The risk of stagflation - a mix of feeble growth and high inflation – has been rising for the Korean economy in the midst of heightened macro-economic uncertainty from the protracted war between Russia and Ukraine. Growth prospects for Korea have been lowered recently given the war in Ukraine, supply chain disruptions, and lockdowns in China. Elevated inflation is likely to put downward pressure on domestic demand. In July 2022, the International Monetary Fund further downgraded its 2022 growth projection for Korea to 2.3% from its revised projection of 2.5% in April, while it also cut the country’s 2023 growth outlook to 2.1% from 2.9%.