Korea's GDP Growth in the Second Quarter of 2024

The Korean economy experienced a slight GDP contraction of 0.2% in the second quarter of 2024 compared to three months earlier, while maintaining a 2.3% year-on-year growth. Emerging from the downturn experienced in 2023, the economy registered an unexpected growth in the first quarter of 2024, with GDP rising by 1.3% quarter on quarter and 3.3% year on year.

(Source: Bank of Korea, July 25, 2024)

Private consumption saw a slight increase in service expenditures including education costs but declined by 0.2% overall due to weak spending on goods such as passenger cars and apparel. Government consumption rose by 0.7%, driven primarily by increased spending on the acquisition of goods. Construction investment decreased by 1.1%, with declines in both residential building construction and civil engineering projects. Equipment investment fell by 2.1% due to reduced investment spending on machinery including semiconductor manufacturing equipment, despite an increase in investment in transportation equipment (automobiles). Exports increased by 0.9%, led by automobiles and chemical products, while imports grew by 1.2%, driven by crude oil and petroleum products.

*Figures in (  ) refer to year-on-year growth rates. (Source: Bank of Korea, July 25, 2024)

The Bank of Korea (BOK) revised its annual economic growth forecast for Korea during the Monetary Policy Board meeting on May 23, 2024. The forecast was adjusted upward from the previous 2.1% (within a range of 1.9% to 2.3%) to 2.5%, reflecting the anticipated increase in exports driven by the recovery of the semiconductor industry in the first half of the year, as well as the expected rebound in domestic demand in the second half. Although the real gross domestic income (GDI) increased by 2.5% in the first quarter of 2024, it declined by 1.3% in the second quarter.

On July 11, 2024, the BOK decided once again to maintain the benchmark interest rate at the current level of 3.5%. It stressed the importance of further evaluating whether the ongoing slowdown in inflation will be sustained and closely monitoring how exchange rate volatility and rising household debt may affect financial stability. Given these considerations, the central bank determined that it is prudent to maintain the current tightening stance while continuing to assess both domestic and international policy conditions.

(Source: Bank of Korea, July 11, 2024)

The global economy sustained a trajectory of modest growth alongside a trend of slowing inflation. However, both the global economy and international financial markets are anticipated to be affected by several key factors, including the varying degrees of inflationary slowdown across major economies, divergences in the execution of monetary policies, evolving risks in the Middle East, and the political situation within major nations. In particular, there are risk factors involving the ongoing Russia-Ukraine conflict and heightened concerns over the potential escalation of the Israel-Hamas war.

The domestic economy saw ongoing improvements in exports, but adjustments in domestic demand led to persistent sectoral disparities and a slowdown in overall growth. Looking ahead, the domestic economy is expected to exhibit modest growth, supported by ongoing export growth and a gradual recovery in consumption. However, this outlook is likely to be influenced by factors such as the pace of the IT sector's expansion, the trajectory of consumption recovery, and monetary policies in major economies.

In June 2024, the consumer price inflation rate moderated to 2.4%, primarily due to a slower increase in the prices of agricultural products and processed food. The core inflation rate remained steady at 2.2%, consistent with the previous month. The annual inflation rate is projected to be around 2.2%. Moving forward, the inflation trajectory is expected to be shaped by factors such as fluctuations in international oil prices and exchange rates, trends in agricultural product prices, and adjustments in public utility fees.

The BOK will continue to monitor the growth trajectory while ensuring that inflation remains stable at the target level over the medium term, with a keen focus on maintaining financial stability. Accordingly, future monetary policy will be guided by a sufficiently tight stance and a thorough assessment of the trade-offs among key policy variables such as inflationary slowdown, growth, and financial stability, in order to determine the appropriate timing for any potential rate cuts.