Bank of Korea Releases Preliminary Q1 Real GDP Figures
Falls Short of Forecast by 0.2%... Negative Growth Returns After Three Quarters
Due to weaker-than-expected domestic demand and a slowdown in exports, South Korea's economic growth rate for the first quarter of this year recorded -0.2%.
The Bank of Korea announced on April 24 that the preliminary real gross domestic product (GDP) growth rate for the first quarter decreased by 0.2% compared to the previous quarter. This figure is 0.4 percentage points lower than the Bank of Korea's forecast of 0.2% announced in February. It is the first time the growth rate has turned negative in three quarters since the second quarter of 2024.
The Korean economy saw a surprise growth of 1.3% in the first quarter of last year, but immediately fell to -0.2% in the second quarter. Growth remained at just 0.1% in both the third and fourth quarters, before turning negative again this quarter.
The Bank of Korea had suggested the possibility of negative growth for the first quarter on April 17. The central bank cited several factors: prolonged domestic political uncertainty that lasted longer than expected, unexpected wildfire damage, the suspension of construction at certain sites, and concerns over U.S. tariff policy, all of which contributed to weakening economic sentiment in March.
By sector, domestic demand, exports, and imports all performed poorly in the first quarter.
Private consumption decreased by 0.1% due to sluggish spending on services such as entertainment, culture, and medical care. Government consumption also declined by 0.1% as spending on health insurance benefits fell. Construction investment dropped by 3.2%, mainly due to reduced building construction. Facility investment decreased by 2.1% as purchases of machinery, including equipment for semiconductor manufacturing, declined.
Exports fell by 1.1% as shipments of chemical products, machinery, and equipment decreased, while imports dropped by 2.0%, mainly due to lower imports of energy products such as crude oil and natural gas.
In terms of contribution to growth by expenditure item, domestic demand?including consumption and investment?contributed -0.6 percentage points, while net exports (exports minus imports) contributed 0.3 percentage points, highlighting the weakness in domestic demand. By item, construction investment contributed -0.4 percentage points and facility investment contributed -0.2 percentage points, both dragging down the growth rate. Net exports, on the other hand, contributed positively to growth, as the decline in imports (-0.8 percentage points) was greater than the decline in exports (-0.3 percentage points).
By industry, agriculture, forestry, and fisheries increased by 3.2%, mainly driven by fisheries. Electricity, gas, and water supply rose by 7.9%, led by gas, steam, and air conditioning supply. In contrast, manufacturing declined by 0.8%, mainly due to decreases in chemicals, chemical products, machinery, and equipment, while construction also fell by 1.5%. The service sector remained at the previous quarter's level, as increases in finance and insurance, as well as information and communications, were offset by declines in transportation, wholesale and retail, and accommodation and food services.
Real gross domestic income (GDI) for the first quarter decreased by 0.4% compared to the previous quarter, falling short of the GDP growth rate.
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