Export and Domestic Demand Improve Together... Our Economy Grows 1.3% in Q1 (Update)

Q1 GDP Growth Rate 1.3%, Same as April Preliminary Figure
Exports, Construction Investment, and Private Consumption Improve

Export containers are being loaded onto a ship at Busan North Port. Photo by Jinhyung Kang aymsdream@

With simultaneous improvements in exports and domestic demand, South Korea's economic growth rate in the first quarter exceeded market expectations.

The Bank of Korea announced on the 5th that South Korea's real Gross Domestic Product (GDP, preliminary) growth rate for the first quarter was recorded at 1.3% quarter-on-quarter. This is the same result as the flash estimate announced on April 25.

South Korea has recorded positive growth rates for five consecutive quarters, following 0.4% in Q1 last year, 0.6% in Q2, 0.8% in Q3, 0.5% in Q4, and continuing through Q1 this year.

The economic growth rate for Q1 this year significantly surpassed market expectations (0.6%). It is also the highest rate in nine quarters since the 1.6% recorded in Q4 2021.

Not only did exports continue to improve, but domestic demand such as construction investment and private consumption also strengthened. Looking at the growth rates by expenditure item in Q1, exports increased by 1.8% quarter-on-quarter, centered on IT items such as semiconductors and mobile phones, as well as petroleum products.

Construction investment rose by 3.3% as both building construction and civil engineering improved. Private consumption increased by 0.7%, with growth in both goods (such as clothing) and services (such as food and accommodation), while government consumption rose by 0.8% due to increased spending on goods and other expenses.

On the other hand, facility investment decreased by 2.0%, mainly due to transportation equipment, and imports also fell by 0.4% due to reductions in natural gas and electrical equipment.

Compared to the flash estimate, private consumption (-0.1 percentage points) and facility investment (-1.2 percentage points) were revised downward, while construction investment (0.7 percentage points) and exports (0.9 percentage points) were revised upward.

Regarding the contribution to growth by expenditure item in Q1 GDP, net exports contributed 0.8 percentage points, construction investment 0.5 percentage points, private consumption 0.3 percentage points, and government consumption 0.1 percentage points. By sector, the private sector contributed 1.2 percentage points and the government 0.1 percentage points, indicating that most of the growth came from the private sector.

In particular, the contribution of construction investment rose significantly from -0.6% in Q4 last year to 0.5%, which the Bank of Korea explained was due to improved weather conditions in Q1 that led to increased finishing work at some construction sites.

Looking at growth rates by economic activity, manufacturing increased by 0.9% quarter-on-quarter due to growth in transportation equipment. Construction rose by 5.5% with increases in both building and civil engineering construction, and services improved by 0.9% quarter-on-quarter, driven by growth in wholesale and retail, accommodation and food services, and cultural and other services.

Real Gross National Income (GNI) in Q1 increased by 2.4% quarter-on-quarter. This exceeded the GDP growth rate (1.3%) due to a reduction in real trade losses from improved terms of trade.

The GDP deflator, an index representing the overall domestic price level, rose by 3.9% year-on-year in Q1. The total savings rate in Q1 (35.1%) increased by 1.5 percentage points quarter-on-quarter, while the gross domestic investment rate (29.7%) decreased by 0.8 percentage points quarter-on-quarter.