South Korea’s economy beats expectations in Q4, driven by exports
South Korea’s economy grew faster than expected in the fourth quarter of 2023, thanks to a strong recovery in exports, especially in the semiconductor sector. The country’s gross domestic product (GDP) rose by 0.6% in the October-December period, compared to the previous quarter, according to the Bank of Korea (BOK). This matched the growth rate of the third quarter and exceeded the median forecast of 0.5% by economists.
On an annual basis, South Korea’s GDP expanded by 2.2% in the fourth quarter, the fastest pace since the third quarter of 2022, and higher than the 2.1% projection by analysts. For the whole year of 2023, the economy grew by 1.4%, the lowest rate in three years, after increasing by 2.6% in 2022 and 4.3% in 2021.
The main driver of the fourth-quarter growth was exports, which surged by 2.6%, while imports rose by 1.0%, resulting in a net contribution of 0.8 percentage points to the GDP growth. South Korea’s exports, which account for about half of its economic output, have been recovering from the slump caused by the COVID-19 pandemic and the U.S.-China trade war. In particular, the demand for memory chips, which make up about 20% of the country’s exports, has been rising due to the global shift to remote work and online education.
Other components of the GDP also showed positive signs in the fourth quarter. Private consumption, which reflects household spending, increased by 0.2%, while facility investment, which measures spending on machinery and equipment, jumped by 3.0%. Government spending also rose by 0.4%, as the authorities implemented fiscal stimulus measures to support the economy amid the pandemic.
However, not all sectors performed well in the fourth quarter. Construction investment, which reflects spending on buildings and infrastructure, plunged by 4.2%, as the government tightened regulations on the housing market to curb speculation and soaring prices.
The BOK, which has kept its policy rate unchanged at 0.5% since May 2023, hinted earlier this month that it may consider monetary easing in line with its global peers, as it lowered its inflation outlook for 2024 from 1.3% to 1.0%. The central bank also projected that the economy will grow by 2.1% in 2024, slightly lower than its previous forecast of 2.2%.
The outlook for South Korea’s economy remains uncertain, as it faces several challenges, such as the resurgence of COVID-19 cases, the slow pace of vaccination, the weak domestic demand, the geopolitical tensions with North Korea, and the competition from China in the chip market. However, the country’s strong export performance and its resilience to external shocks may help it overcome these difficulties and achieve a faster and more balanced recovery in 2024.
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