Bank of Korea "Rapid Lifting of Martial Law... Limited Impact on Market" [Q&A]

Q3 National Income (Preliminary) Press Briefing

The Bank of Korea evaluated that the impact on the market was limited as the martial law situation was lifted relatively quickly.

Yonhap News

Kang Chang-gu, Director of the National Accounts Division at the Bank of Korea's Economic Statistics Bureau, said at the '2024 Q3 National Income (Preliminary)' press briefing on the 5th, in response to questions about the impact of increased political uncertainty after martial law on economic growth, "Since the martial law situation was lifted relatively quickly, the impact on the market appears to be limited," adding, "It is premature to judge what effect it will have on the real economy at this time."

Regarding the possibility of achieving the annual growth rate, he said, "Technically, if the growth rate exceeds 0.5% in Q4, the annual growth rate of 2.2% can be achieved," and evaluated, "The cumulative growth rate from Q1 to Q3 is 2.3% compared to the same period last year, so achieving the annual growth rate is possible."

On the background of the decline in exports, he said, "The growth of non-IT item exports slowed in Q3," adding, "Automobiles were affected by strikes, and chemical products were impacted by decreased demand for synthetic resins in China, which contributed to lowering the growth rate," and "In the case of semiconductors in Q3, the volume index for October turned positive."

Below is a Q&A with Director Kang.

- Political uncertainty has increased after martial law. Does this affect the economic growth rate?

▲With the lifting of the emergency martial law yesterday, our economy is in a highly uncertain situation. We are viewing this very seriously. However, since the martial law situation was lifted relatively quickly, the impact on the market appears to be limited. It is premature to judge what effect it will have on the real economy at this time. At yesterday’s temporary Monetary Policy Committee meeting, the Bank of Korea focused on liquidity supply to stabilize the market and will provide further updates as additional data becomes available.

- In the preliminary figures, exports and imports increased, but construction investment and facility investment were revised downward. What is the reason?

▲At the time of the flash estimate release, September’s balance of payments data had not been obtained, so the preliminary work reflected this, resulting in upward revisions for both exports and imports. Construction investment was revised downward mainly in building construction as it reflected construction performance amounts that were not included in the flash estimate.

- To achieve an economic growth rate of 1.6% in the second half, what level of growth should be achieved in Q4?

▲Technically, if growth exceeds 0.5% in Q4, an annual growth rate of 2.2% can be achieved. Whether this is achievable depends on checking the data, but the cumulative growth rate from Q1 to Q3 compared to the same period last year is 2.3%, so achieving the annual growth rate is possible.

- In the previous flash estimate, it was said that the automobile sector would recover. Is it showing a favorable trend?

▲Semiconductors still appear strong based on customs clearance data. The growth rate of petroleum products and non-IT items has somewhat slowed. The main cause of the automobile export slump in Q3 was strikes, but in October and November, the automobile strikes ended, and the growth rate was only slightly positive due to additional factors such as parts suppliers’ strikes and factory fires.

- Facility investment has increased significantly since Q1 2021. What is the future impact?

▲Looking at imports of semiconductor manufacturing equipment in October and November, they still appear strong. Companies’ investment plans for the second half show a greater intention to expand compared to the first half. This can be viewed positively.

- Although exports improved compared to the flash estimate, are they still worse than previous forecasts? At the time of the Q3 GDP flash estimate, was there concern about parts other than semiconductors? You mentioned semiconductor exports were poor in volume terms; has there been any change?

▲Regarding Q3 exports, I explained that non-IT item exports, centered on automobiles and chemical products, contributed negatively. For semiconductors, the export volume index for October turned positive. This is a year-on-year trend, but whether it continues is uncertain because structural issues have not been resolved, so we need to observe further. Data shows that semiconductor volumes in October increased compared to the same period last year.

- Nominal GDP and nominal GNI turned negative for the first time in two years. The decline in nominal GDP is the largest since Q2 2020. Why have these two indicators worsened compared to the past?

▲It is true that there is concern because nominal GDP turned negative. Nominal amounts involve both volume and price aspects. The nominal decline is mainly due to price factors. Real GDP is slightly positive, and the impact of the GDP deflator was significant. If nominal income falls but prices also fall significantly, it is not a big problem. What really matters is real GDP. Even if nominal income increases by 10%, if prices rise by 10%, real income does not increase. The nominal decline was largely due to price factors. Even looking at the year-on-year trend, the growth rate remains at a fairly high level.