Korean economy grows 1.4 percent in 2023, lowest in three years

Containers are stacked at a pier in Korea's largest port city of Busan on July 4, 2023. [YONHAP]

Korea’s economy grew 1.4 percent last year, the lowest in three years, due to sluggish exports and weak private consumption amid continued monetary tightening.

The annual growth was in line with estimates by the government and the Bank of Korea (BOK) but was almost half the 2.6 percent growth shown in 2022, according to the advance estimate of the BOK data Thursday.

In the fourth quarter of last year, Korea’s gross domestic product (GDP) advanced 0.6 percent on-quarter, or 2.2 percent from a year earlier.

Annual private consumption in Korea, Asia’s fourth-largest economy, weakened to 1.8 percent from the previous year's 4.1 percent and government consumption slipped down to 1.3 percent from last year's 4.0 percent.

Meanwhile, construction investment grew to 1.4 percent, up from the previous year of negative 2.8 percent. But in the fourth quarter alone, construction investment plunged 4.2 percent from the previous quarter, marking its biggest drop since the first quarter of 2012.

Export and import growth dropped down to 2.8 percent and 3.0 percent last year, respectively, from 3.4 percent and 3.5 percent in 2022.

Excluding the Covid-19 period, last year’s growth was the lowest since 0.8 percent in 2009.

“High inflation, interest rates and a delayed IT economic recovery slowed the growth of private spending and exports,” said Shin Seung-chul, director general at the BOK’s economic statistics department.

Shin said the country’s potential growth rate, which hovers at 2 percent, is affected by structural change in population, like a low birthrate and aging society, as well as a fall in productivity due to intensified competition with China and India, the reshuffling of global supply chain networks and climate change issues.

The government projects Korea’s economy to grow 2.2 percent this year, helped by the recovery of IT exports. The outlook was revised down from the earlier estimate of 2.4 percent made last July.

“Weak private consumption will be the key to putting downward pressure on the economy while export improvement will put upward pressure,” Shin added.

The BOK Gov. Rhee Chang-yong said last month that the 2.1 percent growth for 2024 is based on the recovery of IT exports. Rhee said the growth will be slashed to 1.7 percent without the IT sector.

Korea’s export is projected to jump 12.5 percent on year in 2024, according to Samsung Securities economists Chung Sung-tai and Keum Jong-ho in a report Thursday.

“Rate cuts at central banks that will start from the second quarter will be positive for Korean exports, as it will raise import demand for durable goods in different countries. But the degree of export recovery will vary largely by sectors due to China’s weak economy.”

The Korean economy contracted amid escalating geopolitical tensions, rising household debt and a slowdown in China’s economy, which has kept the BOK to hold the rates unchanged at 3.50 percent for a year.

BY JIN MIN-JI [jin.minji@joongang.co.kr]