Korea's 1.3% Surprise Growth in Q1, Driven by Both Exports and Domestic Demand (Update)

Q1 Real Gross Domestic Product (GDP) Growth Rate at 1.3%
Exceeds Market Expectations...Exports and Domestic Demand Grow Together

South Korea's economy in the first quarter showed a growth rate that significantly exceeded market expectations. Both exports and domestic demand grew simultaneously, leading to a substantial improvement in the economic growth rate.

[Image source=Yonhap News]

The Bank of Korea announced on the 25th that the real Gross Domestic Product (GDP) growth rate (preliminary) for the first quarter of this year grew by 1.3% compared to the previous quarter. This is the highest rate in nine quarters since recording 1.4% in the fourth quarter of 2021. It is also a growth rate that greatly surpasses market expectations.

South Korea has recorded positive growth rates for five consecutive quarters, from 0.3% in the first quarter of last year, 0.6% in the second quarter, 0.6% in the third quarter, 0.6% in the fourth quarter, and continuing into the first quarter of this year.

Looking at the growth rate by sector in the first quarter, private consumption increased by 0.8% as both goods (such as clothing) and services (such as food and accommodation) rose. Government consumption increased by 0.7% due to higher spending on goods, and construction investment rose by 2.7% as both building construction and civil engineering increased.

Exports increased by 0.9%, centered on IT items (such as mobile phones), while imports decreased by 0.7%, mainly due to electrical equipment. Facility investment declined by 0.8% due to a reduction in transportation equipment.

Regarding the contribution to the growth rate by expenditure items, improvements in exports and consumption were clear. The contribution of net exports (exports minus imports) to the first quarter economic growth rate was 0.6 percentage points, continuing a positive trend for four consecutive quarters since the second quarter of last year.

The contribution of private consumption rose to 0.4 percentage points, compared to just 0.1 percentage points in the third and fourth quarters of last year. Construction investment also reversed to a positive contribution of 0.4 percentage points from -0.5 percentage points in the fourth quarter of last year.

By sector, the contribution to growth showed that the private sector led South Korea's economic growth in the first quarter, with 1.3 percentage points from the private sector and 0.0 percentage points from the government.

By industry, manufacturing grew by 1.2%, centered on chemical products and transportation equipment. The electricity, gas, and water supply sector increased by 1.8%, driven by water supply, sewage and waste treatment, and raw material recycling industries.

The construction industry grew by 4.8%, with increases in both building construction and civil engineering, while the service industry grew by 0.7%, mainly in wholesale and retail trade and accommodation and food services. In contrast, agriculture, forestry, and fisheries declined by 3.1%, mainly in crop farming.

The real Gross Domestic Income (GDI) in the first quarter increased by 2.5%, surpassing the real GDP growth rate of 1.3%.