Korea's economy retreats 0.2 percent in Q2

Economy

Published: 25 Jul. 2024, 08:03 Updated: 25 Jul. 2024, 14:54

Korea's economy retreats 0.2 percent in Q2

Shin Seung-chul, director general of the economic statistics division at the Bank of Korea (BOK), speaks during a press briefing held at the bank in central Seoul on Thursday. [BOK]

Korea’s economy shrank 0.2 percent in the second quarter, mildly reversing the rapid growth seen earlier this year, while domestic demand remained sluggish.

This marks the first negative on-quarter growth since the fourth quarter of 2022.

According to advance estimates by the Bank of Korea (BOK) on Thursday, the country’s real GDP fell by 0.2 percent from the previous quarter in the April-June period. On a yearly basis, the GDP expanded 2.3 percent from the same period a year earlier.

This brings the half-year GDP growth to 2.8 percent, the steepest since the 3.2 percent recorded in the first half of 2022, yet slightly below the BOK’s projection of 2.9 percent.

The central bank cited the base effect from the previous quarter's 1.3 percent growth, which marked the steepest surge since the fourth quarter of 2021, for the quarterly retraction.

“If the economy grows 2.2 percent in the second half of this year as projected, the yearly growth will come at 2.5 percent — therefore, the current pace of economic growth seems to be in line with the projected trajectory,” said Shin Seung-chul, director general of the BOK’s economic statistics division, during a briefing Thursday.

The BOK upped its growth projection this year from the previous 2.1 percent to 2.5 percent in May. The GDP is expected to grow 2.2 percent in the latter half of the year.

For the 0.2 percent contraction in the second quarter, a decline in domestic demand — dragged down by reduced private consumption and construction investment — was responsible for a 0.1 percentage point drop. Increased imports contributed another 0.1 percentage point decrease.

Private consumption dropped by 0.2 percent in the April-June period, with reduced spending on goods such as cars and clothes. Government consumption, on the other hand, increased 0.7 percent.

Construction investment fell by 2.1 percent, following a 3.3 percent increase in the previous quarter, which was the steepest rise since the fourth quarter of 2019. Facilities investment also decreased by 2.1 percent.

In the same period, exports rose by 0.9 percent, while imports increased by 1.2 percent, boosted by crude oil and petroleum products.

The BOK statistics chief cited high interest rates and consumer prices for the decline in private consumption, and projected that domestic demand would improve over the remainder of the year.

"In the latter half, domestic demand, especially private consumption and facility investment, is likely to see a gradual rebound,” Shin said.

Update, July 25: Added details about the advance estimate and comments from the Bank of Korea.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]