SEOUL -- The South Korean economy contracted 0.4 percent year-on-year in the fourth quarter of last year due to falling domestic consumption and exports amid sluggish global demand, runaway inflation and higher interest rates, according to the Bank of Korea (BOK) on January 26.
The economic contraction was the first of its kind since the country posted a 3 percent negative growth in the second quarter of 2020 in the aftermath of the COVID-19 pandemic.
Despite the fourth quarter shrinkage, the Korean economy grew 2.6 percent for all of 2022 as the BOK predicted, marking a stable growth for the second consecutive year.
The BOK said private consumption fell 0.4 percent in the last three months of 2022, after growing 2.9 percent in the second quarter and 1.7 percent in the third quarter. The fall was attributed to decreasing consumption of electronics, clothing and footwear products as well as sluggish services such as dining, lodging, entertainment and cultural activities.
By sector, the manufacturing industry contracted 4.1 percent amid a global economic slowdown and falling domestic demand. But the construction sector grew 1.9 percent, followed by agriculture and fisheries (1.5 percent) and the services sector (0.8 percent).
Quarterly facility investment edged up 2.3 percent from a year earlier, compared with a 7.9 percent jump in the third quarter.
Against this backdrop, exports declined 5.8 percent year-on-year, driven by falling shipments of semiconductors and chemical products. Imports also dropped 4.6 percent as the country brought in less crude oil and reduced the purchase of metal products.
On the other hand, government consumption rose 3.2 percent year-on-year, helped by growing expenditures for national health insurance coverage and other public services.
The economic slowdown is expected to continue this year as the downside risks will persist at least in the first half. The BOK predicted the economy will grow 1.7 percent in 2023, much lower than last year’s 2.6 percent growth.
The Ministry of Economy and Finance’s growth projection stood at a lower rate of 1.6 percent. However, Economy and Finance Minister Choo Kyung-ho said on January 26 that the economy will turn for the better in the first three months of this year by posting a positive growth.
He added that it is possible for the economy to rebound with the help of the base effect and China’s lifting of COVID-19 restrictions. He believes that a recovery trend will be conspicuous in the latter half of the year when the slumping semiconductor industry, a main growth engine for South Korea, is likely to get better.
Choo has promised to frontload 340 trillion won ($276 billion) worth of projects, including fiscal spending and public and private sector investment in the first six months of the year to speed up an economic recovery. He has also committed to pushing for deregulation and innovation to help boost exports and investment.
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