| Container boxes are stacked at a port in the nation's southern port city of Busan in this file photo. Yonhap |
Economy to get back on recovery track from 2nd half: finance minister
By Lee Min-hyung
The Korean economy contracted 0.4 percent in the fourth quarter of 2022 compared to the previous three months, with the twin engines of growth ― private spending and exports ― declining simultaneously amid a global economic slowdown, the Bank of Korea (BOK) said Thursday.
This marks the first time since the second quarter of 2020 that the Korean economy shrank. GDP contracted 3 percent back then amid the outbreak of the COVID-19 pandemic. The 2022 GDP growth came in at 2.6 percent, down 1.5 percentage points from a year ago when the Korean economy grew 4.1 percent.
The decline in private consumption and exports drove down the quarterly GDP growth, according to BOK data. Private consumption here showed signs of bouncing back during the second and third quarters of last year by displaying growth of 2.9 and 1.7 percent, respectively. But private consumption dropped by 0.4 percent in the fourth quarter.
Exports also displayed dismal performance by dropping 5.8 percent between October and December due to falling demand for Korea's key export items, such as semiconductors and chemical products.
Economists said a possible rebound in exports will determine the annual GDP growth in 2023.
“Overall growth here will continue showing signs of a slowdown until the first half of this year on weakening consumption triggered by soaring prices and key rate hikes,” Kang Hyun-ju, a research fellow at the Korea Capital Market Institute, said.
If GDP continues to contract in the first quarter, it will meet the technical definition of a recession, which refers to two consecutive quarters of declining GDP. As consumption slowed down by a huge margin and export growth remained weak during the last quarter, however, there is a chance that first-quarter GDP will take a turn for growth on statistical base effects, according to the economist.
“It is too early to say that the economy will continue to contract until the first and second quarter and will fall into a trap of recession,” he said.
The expert also pointed out that a potential recovery in exports tops the requisites for GDP growth.
“An export recovery _ driven by China's reopening _ will help the economy bounce back from the second quarter,” Kang said.
Kim Dae-jong, a professor of business administration at Sejong University, also forecast the economy to be on a path for recovery in the latter half of 2023.
“Korea's trade dependence is the world's second largest, but the country reported a trade deficit on soaring energy costs and declining outbound shipments of key export products, such as chips and petrochemical products, which drove the contraction in the fourth quarter,” Kim said.
He shared a negative outlook on the economy for the time being due to a high level of interest rates.
“The BOK steeply increased the key rate to 3.5 percent, and a rate cut is not expected in the near future,” Kim said. “Companies and households here will continue facing tough conditions due to the interest burden, which does not help the economy.”
Finance Minister Choo Kyung-ho said Thursday that the economy will gradually be on track for a recovery in the latter half of this year.
“The economy will grow in the first quarter of 2023 on base effects and China's economic reopening,” he said. “Even if the [Korean] economy is widely forecast to face a very difficult time due to a global economy slump, it will show signs of recovering as the chip industry's outlook improves gradually.”