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Korea Herald
24-07-2025
- Business
- Korea Herald
Korea's economy edges toward recovery, but tariff risks loom
Growth in chip-led exports, private spending presents silver lining The South Korean economy expanded by 0.6 percent in the second quarter of this year, posting a rebound from the 0.2 percent contraction in the previous quarter, driven primarily by gains in exports and private consumption, the country's central bank announced Thursday. The country's real gross domestic product — a key measure of economic growth — inched up 0.61 percent in the April-June period from the previous three months, according to an advance estimate presented by the Bank of Korea. The Korean economy outperformed the BOK's previous projection by 0.1 percentage point. In May, the central bank suggested the economy would advance by 0.5 percent in the second quarter. The BOK evaluated that the 0.6 percent growth is meaningful as it could indicate an end to the cycle of low growth. After logging a 1.2 percent growth in the first quarter of last year, the economy contracted by 0.2 percent in the second quarter and then grew by only 0.1 percent in both the third and fourth quarters, followed by a 0.2 percent contraction in the first quarter of this year. 'Although future growth prospects remain highly uncertain due to factors such as the US tariffs, the performance is meaningful as it signals a relief from the sluggish growth seen over the past year," Lee Dong-won, a senior official of economic statistics at the BOK, said at a press briefing held Thursday. 'Looking at the growth contribution, strong exports and private consumption were the main drivers of growth in the second quarter, both of which returned to positive territory.' Exports, mainly led by the semiconductor sector, rose by 4.2 percent in the second quarter, rebounding from a 0.6 percent contraction in the previous quarter. Private consumption expenditure also increased by 0.5 percent, recovering from a 0.1 percent decline on-quarter. The BOK attributed the recovery to the resolved political uncertainty. Lee assessed that the economy will take on a different trajectory in the second half of 2025, when the US administration's tariff policy is expected to take effect in full force. 'Though exports led the recovery in the second quarter, the US tariffs are expected to take a toll on the local economy from the third quarter onward,' he said. 'Domestic demand may improve further, supported by a recovery in consumer sentiment and the effects of the second supplementary budget,' Lee said, referring to the country's stimulus coupon program. The latest figure has renewed hopes that the Korean economy could reach 1 percent growth this year, potentially surpassing the previous 0.9 percent consensus. While the BOK projected 0.8 percent annual growth in May, the rate was expected to rise to around 0.9 percent with the added boost from the supplementary budget. 'As Korea is yet to strike a tariff deal with the US, it is difficult to say whether the country will achieve (growth of) 1 percent this year or not,' Lee said. "By simple calculation, an average of 0.7 percent growth in the second half is needed for the annual growth rate to reach 0.9 percent. A 0.8 percent growth in the second half would make the annual growth rate reach 1 percent.' While Japan has recently struck a tariff deal with the US, cutting tariffs to 15 percent, Lee noted that Korea's economic outlook would likely remain largely unchanged if it manages to secure a similar agreement. 'If Korea strikes a deal on par with Japan's, the outlook is unlikely to deviate significantly from the projection made in May. Since the 15 percent tariff would be only slightly worse than expected, the May forecast may still hold for the second half,' Lee said.
New Straits Times
24-07-2025
- Business
- New Straits Times
South Korea's economy grows in second quarter on exports surge
SEOUL: South Korea's economy grew 0.5 per cent in the second quarter, the country's central bank said Thursday, as strong demand for semiconductors propelled exports to its biggest gain in nearly five years. "Real gross domestic product (GDP) grew 0.5 per cent compared to the same period last year," the Bank of Korea said, adding that output expanded by 0.6 per cent from the previous quarter. The quarterly gain exceeded the bank's May projection of 0.5 per cent, driven by stronger private consumption and a 4.2 per cent increase in exports. But the central bank warned that US tariffs posed risks to the economy, with Seoul having failed so far to reach a deal with Donald Trump's administration to bring down the threatened 25 per cent levy on South Korean goods. "Factors like US tariffs are significant uncertainties that remain regarding the country's future growth trajectory," Bank of Korea official Lee Dong-won told a press briefing on Thursday. "As for the second and third quarters of this year, tariffs do not appear to have had a major impact yet. This is mainly because reciprocal tariff measures were temporarily suspended, and Korean companies responded swiftly," he added. Experts also put the rebound down to easing political stability after President Yoon Suk Yeol's impeachment over his declaration of martial law was complete and a new president elected. The country's economy has "bottomed out with a rebound in GDP in the second quarter after political instability and weak confidence drove a contraction early this year," said Hyosung Kwon, an economist at Bloomberg. "Even so, an output gap deep in negative territory means there's still slack between demand and supply," said Kwon, adding that the recovery was "fragile". Besides the threatened broader 25 per cent US tariff if a deal is not reached by Aug 1, South Korea has already been hit with similar levies on steel and car exports to the United States. Trade Minister Yeo Han-koo, currently in Washington, told reporters on Tuesday that the country faces a "grave situation" and that they will "do their best in the negotiations". But the finance ministry said Thursday morning that their trade talks were cancelled due to US Treasury Secretary Scott Bessent's "urgent schedule".
Korea Herald
24-04-2025
- Business
- Korea Herald
Korean economy shrinks again in Q1
BOK suggests Q2 growth rate may miss expected 0.8 percent The South Korean economy contracted in the first quarter, reflecting its struggle to rebound from sluggish consumption affected by political turmoil and poor export performance stemming from weak demand. Preliminary gross domestic product data from the Bank of Korea released on Thursday showed that the economy shrank 0.2 percent in the January-March from the previous quarter, which was 0.4 percentage point lower than the central bank's earlier forecast in February of 0.2 percent growth. Compared to a year earlier, it contracted by 0.1 percent. This marks the first GDP contraction since a 0.2 percent decline in the second quarter of last year and the first year-on-year contraction since the fourth quarter of 2020, when the COVID-19 pandemic disrupted the global economy. "The prolonged uncertainty in domestic politics and shifts in US tariff policies have exacerbated uncertainties in the trade environment, delaying the recovery of consumer and investment sentiment,' Lee Dong-won, head of the economic statistics department at the Bank of Korea, said in a press briefing. The weaker-than-expected GDP figure increases the likelihood that Asia's fourth-largest economy will fall short of the central bank's full-year GDP growth forecast of 1.5 percent for 2025 and that the BOK will resume its easing cycle. The BOK's latest report comes as the country's top economic and trade policymakers visit Washington to negotiate with their US counterparts, aiming to mitigate the impact of industry-specific tariffs and country-specific "reciprocal" duties imposed on a Korean economy that is heavily reliant on semiconductor and automobile exports. Lee said the negative effects of unpredictable US tariff measures have yet to be reflected in the export figures. The first quarter was lackluster in terms of domestic demand, which contributes nearly half of all economic growth, and exports, which represent one-third of the country's GDP. By sector, private consumption fell by 0.1 percent on-quarter, primarily due to weak spending in services such as entertainment and healthcare. Government consumption also declined by 0.1 percent, driven by reduced expenditures on health insurance benefits. Construction investment experienced a substantial decrease of 3.2 percent, largely in the construction of buildings, marking the sharpest decline since the third quarter of 2021. Equipment investment, meanwhile, contracted by 2.1 percent, mainly in machinery such as chipmaking equipment. Exports decreased by 1.1 percent, impacted by weak demand for chemical products, machinery and equipment. Imports also fell by 2.0 percent, primarily on declines in energy-related goods such as crude oil and natural gas. The BOK acknowledged significant uncertainty regarding this year's growth trajectory but anticipates a recovery in domestic demand in the second quarter, which could lead to an increase in the growth rate. The easing of some domestic political uncertainties and the impact of a 0.75 percentage point cut in the benchmark interest rate since October of last year are expected to contribute to this rebound. However, the BOK has indicated that the economic growth rate for the second quarter may fall short of its forecast of 0.8 percent. While domestic demand is expected to recover compared to the first quarter, it is not projected to be sufficient to offset the deterioration in exports. Government spending related to the upcoming presidential election and proactive fiscal measures are viewed as positive drivers for second quarter growth. "Economic sentiment is likely to improve in the second quarter compared to the first. With budget allocations tied to the June election, there is potential for increased spending, particularly among non-profit organizations,' Lee said. The government has submitted a supplementary budget proposal worth 12 trillion won ($8.4 billion) to the National Assembly. Despite a cautiously positive outlook for the next quarter, global institutions are increasingly downgrading their projections for the Korean economy this year. On Tuesday, the International Monetary Fund lowered its growth forecast for Korea from 2.0 percent to 1.0 percent. Similarly, the Organization for Economic Cooperation and Development and the Asian Development Bank also revised their forecasts down to 1.5 percent, from 2.1 percent and 2.0 percent, respectively. BOK Gov. Rhee Chang-yong hinted at a potential reduction in the central bank's growth projection, which was set at 1.5 percent in February. 'Given recent developments in US tariff policies, the scenarios assumed during our February outlook now appear overly optimistic,' he noted following the Monetary Policy Committee meeting on April 17. The contraction in the first quarter reinforces the rationale for the Bank of Korea to consider a cut in the benchmark interest rate in May to stimulate domestic consumption. "In our view, recent risks to both economic growth and inflation could raise the odds for a larger cut of 50 basis points at the May meeting. However, the BOK may deliver a 25 basis point rate cut given its concerns about risks to financial stability," Citi economist Kim Jin-wook said. The central bank maintained its base rate at 2.75 percent during its April meeting, following a cut of 25 basis points in February aimed at stabilizing the currency. Rhee said trade tension arising globally is a 'large headwind," during an interview with CNBC released hours before the first quarter GDP data was unveiled. 'My point is that we will be affected directly by the US tariff and also indirectly in their tariffs to other countries,' he said, citing the semiconductor production in Vietnam, and car and electronics production in Canada. 'I really hope that this trade tension will dissipate because it's bad for everybody.'
Korea Herald
24-04-2025
- Business
- Korea Herald
Korea flags deepened economic slump in Q1
BOK suggests Q2 growth rate may miss expected 0.8 percent The South Korean economy contracted in the first quarter, reflecting its struggle to rebound from sluggish consumption affected by political turmoil and poor export performance stemming from weak demand. Preliminary gross domestic product data from the Bank of Korea released on Thursday showed that the economy shrank 0.2 percent in the January-March from the previous quarter, which was 0.4 percentage point lower than the central bank's earlier forecast in February of 0.2 percent growth. Compared to a year earlier, it contracted by 0.1 percent. This marks the first GDP contraction since a 0.2 percent decline in the second quarter of last year and the first year-on-year contraction since the fourth quarter of 2020, when the COVID-19 pandemic disrupted the global economy. "The prolonged uncertainty in domestic politics and shifts in US tariff policies have exacerbated uncertainties in the trade environment, delaying the recovery of consumer and investment sentiment,' Lee Dong-won, head of the economic statistics department at the Bank of Korea, said in a press briefing. The weaker-than-expected GDP figure increases the likelihood that Asia's fourth-largest economy will fall short of the central bank's full-year GDP growth forecast of 1.5 percent for 2025 and that the BOK will resume its easing cycle. The BOK's latest report comes as the country's top economic and trade policymakers visit Washington to negotiate with their US counterparts, aiming to mitigate the impact of industry-specific tariffs and country-specific "reciprocal" duties imposed on a Korean economy that is heavily reliant on semiconductor and automobile exports. Lee said the negative effects of unpredictable US tariff measures have yet to be reflected in the export figures. The first quarter was lackluster in terms of domestic demand, which contributes nearly half of all economic growth, and exports, which represent one-third of the country's GDP. By sector, private consumption fell by 0.1 percent on-quarter, primarily due to weak spending in services such as entertainment and healthcare. Government consumption also declined by 0.1 percent, driven by reduced expenditures on health insurance benefits. Construction investment experienced a substantial decrease of 3.2 percent, largely in the construction of buildings, marking the sharpest decline since the third quarter of 2021. Equipment investment, meanwhile, contracted by 2.1 percent, mainly in machinery such as chipmaking equipment. Exports decreased by 1.1 percent, impacted by weak demand for chemical products, machinery and equipment. Imports also fell by 2.0 percent, primarily on declines in energy-related goods such as crude oil and natural gas. The BOK acknowledged significant uncertainty regarding this year's growth trajectory but anticipates a recovery in domestic demand in the second quarter, which could lead to an increase in the growth rate. The easing of some domestic political uncertainties and the impact of a 0.75 percentage point cut in the benchmark interest rate since October of last year are expected to contribute to this rebound. However, the BOK has indicated that the economic growth rate for the second quarter may fall short of its forecast of 0.8 percent. While domestic demand is expected to recover compared to the first quarter, it is not projected to be sufficient to offset the deterioration in exports. Government spending related to the upcoming presidential election and proactive fiscal measures are viewed as positive drivers for second quarter growth. "Economic sentiment is likely to improve in the second quarter compared to the first. With budget allocations tied to the June election, there is potential for increased spending, particularly among non-profit organizations,' Lee said. The government has submitted a supplementary budget proposal worth 12 trillion won ($8.4 billion) to the National Assembly. Despite a cautiously positive outlook for the next quarter, global institutions are increasingly downgrading their projections for the Korean economy this year. On Tuesday, the International Monetary Fund lowered its growth forecast for Korea from 2.0 percent to 1.0 percent. Similarly, the Organization for Economic Cooperation and Development and the Asian Development Bank also revised their forecasts down to 1.5 percent, from 2.1 percent and 2.0 percent, respectively. BOK Gov. Rhee Chang-yong hinted at a potential reduction in the central bank's growth projection, which was set at 1.5 percent in February. 'Given recent developments in US tariff policies, the scenarios assumed during our February outlook now appear overly optimistic,' he noted following the Monetary Policy Committee meeting on April 17. The contraction in the first quarter reinforces the rationale for the Bank of Korea to consider a cut in the benchmark interest rate in May to stimulate domestic consumption. "In our view, recent risks to both economic growth and inflation could raise the odds for a larger cut of 50 basis points at the May meeting. However, the BOK may deliver a 25 basis point rate cut given its concerns about risks to financial stability," Citi economist Kim Jin-wook said. The central bank maintained its base rate at 2.75 percent during its April meeting, following a cut of 25 basis points in February aimed at stabilizing the currency. Rhee said trade tension arising globally is a 'large headwind," during an interview with CNBC released hours before the first quarter GDP data was unveiled. 'My point is that we will be affected directly by the US tariff and also indirectly in their tariffs to other countries,' he said, citing the semiconductor production in Vietnam, and car and electronics production in Canada. 'I really hope that this trade tension will dissipate because it's bad for everybody.'
