Q2 GDP Growth Rate 0.7%... Annual 4% Growth Depends on 'Corona Variable' (Summary)

Bank of Korea Announces '2021 Q2 Real GDP (Preliminary)'
Consumption Improves, Exports Down 2.0%

[Asia Economy Reporters Eunbyeol Kim, Sehee Jang] South Korea's economy grew by 0.7% in the second quarter of this year, continuing the recovery trend throughout the first half. This marks four consecutive quarters of positive growth. However, with the COVID-19 Delta variant continuing to spread uncontrollably, the growth rate for the third quarter remains uncertain. Whether the annual 4% growth target will be achieved depends on the COVID-19 variables in the third and fourth quarters.

According to the preliminary '2021 Q2 Real Gross Domestic Product (GDP)' released by the Bank of Korea on the 27th, the real GDP for April to June this year was 475.7625 trillion won, an increase of 0.7% compared to the previous quarter. Real GDP had contracted due to the impact of COVID-19, with -1.3% in Q1 and -3.2% in Q2 of last year, but turned positive at 2.2% in Q3 and has maintained growth for four consecutive quarters. Previously, the Bank of Korea stated that if GDP growth rates of 0.6% were recorded in Q2 to Q4, annual growth of 4.0% would be possible.

The increase in Q2 GDP was largely driven by private consumption and government consumption. Private consumption rose 3.5%, led by increases in semi-durable goods (such as clothing) and services (entertainment, food and accommodation). Government consumption increased by 3.9%, mainly due to health insurance benefit expenditures. This marks the largest growth in private consumption since Q2 2009 (3.6%) and in government consumption since Q2 1987 (4.2%).

Construction investment decreased by 2.5%, as both building construction and civil engineering declined, while facility investment increased by 0.6%, mainly driven by transportation equipment.

Exports decreased by 2.0%, centered on automobiles and liquid crystal displays (LCDs), whereas imports increased by 2.8%, led by primary metal products and chemical products.

By economic activity, manufacturing and construction turned to a decline, but the increase in services expanded.

Manufacturing decreased by 1.2%, due to a reduction in transportation equipment, and construction fell by 1.4%, mainly in civil engineering. Agriculture, forestry and fisheries, and electricity, gas, and water supply sectors decreased by 13.6% and 3.5%, respectively. On the other hand, services increased by 1.9%, driven by transportation, culture, and other service sectors.

Meanwhile, real Gross Domestic Income (GDI) fell by 0.6% due to worsening terms of trade, lagging behind the GDP growth rate of 0.7%.

Regarding this, Professor Soyoung Kim of Seoul National University's Department of Economics said, "Uncertainty remains due to the fourth wave of COVID-19," adding, "If social distancing measures are further strengthened, private consumption could be impacted." She also noted, "Whether the annual 4.0% target is achieved depends on future economic trends."

Deputy Prime Minister and Minister of Economy and Finance Namki Hong also expressed concern over economic risks from the fourth wave of COVID-19. On social media that day, he said, "The fourth wave starting in early July and the strengthening of distancing measures have emerged as risks to our economy," adding, "We are closely monitoring related trends and damage situations." He emphasized, "The government will do its utmost to block the fourth wave as soon as possible, provide relief for damages, and continue the economic recovery trend through the first half."