Domestic demand contributes more than exports… Has Korea hit rock bottom?

One of the main reasons why the gross domestic product (GDP) growth rate in the first quarter was in the 1% range, far exceeding expectations, was the recovery of domestic demand. Accordingly, there is some analysis that the economy may have bottomed out.

According to the Bank of Korea and the Ministry of Strategy and Finance on the 25th, GDP growth in the first quarter of this year recorded 1.3% compared to the previous quarter. This is a performance that is higher than the market’s original expectation, which was to slightly exceed the growth rate (0.6%) in the fourth quarter of last year.

Domestic demand contributed 0.7 percentage points (p) to the growth rate in the first quarter, accounting for more than half, driving surprising growth. Net export contribution in the first quarter was 0.6%p.

Last year’s quarterly economic growth rate was 0.3% in the first quarter, 0.6% in the second quarter, 0.6% in the third quarter, and 0.6% in the fourth quarter. The contribution to domestic demand during this period was 0.4%p in the 1st quarter, -0.8%p in the 2nd quarter, 0.2%p in the 3rd quarter, and -0.4%p in the 4th quarter.

Compared to last year’s domestic demand, which did not contribute to the overall growth rate, there was a big change in the first quarter of this year.

Yoon In-dae, director of economic policy at the Ministry of Strategy and Finance, said, “From the perspective of domestic demand and exports, exports have contributed significantly to growth (so far),” and added, “However, this time, domestic demand is slightly higher, achieving a balance between domestic demand and exports.” .

“We can conclude that the economy is no longer in a recession,” he said. “If prices stabilize and corporate profits flow to households, the recovery in domestic demand will strengthen in the second half of the year.”

Looking at the first quarter growth rate by sector, most sectors performed well except facility investment.

In particular, construction investment jumped 2.7% compared to the previous quarter as building and civil engineering construction simultaneously recovered. Private consumption also increased by 0.8%, increasing in both goods and services.

Shin Seung-cheol, head of the Bank of Korea’s economic statistics department, said, “It exceeds market expectations and the Bank of Korea’s original forecast, and is a fairly high number for a quarterly growth rate.” He added, “The results are very good, as the domestic demand growth trajectory is quite high and the economic recovery is clearly showing.” evaluated.

As domestic demand revives, some predict that this year’s annual economic growth rate forecast will also be revised upward. As of now, Korea’s economic growth rate forecast for this year is 2.3% by the International Monetary Fund (IMF), 2.2% by the government, and 2.1% by the Bank of Korea.

Director Yoon said, “Because the first quarter was so good, we believe there is a high possibility of an increase,” and added, “If we look at the first quarter performance alone, we predict that it can be adjusted to at least 2.3% or higher.”

Yang Joon-mo, professor of economics at Yonsei University, said, “If this trend is to be said, we can say that we are entering a significant boom phase. Since this is the beginning of economic revitalization, we need policies that focus on price stability and financial stability and take care of the people’s economy in the future.” .

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