South Korea's economy experienced significant growth in the first quarter of this year, driven by strong semiconductor exports. The nominal growth rate reached double digits, marking the highest level in 50 years.
The Bank of Korea announced on June 9 that the real gross domestic product (GDP) growth rate for the first quarter was recorded at 1.8%, an increase of 0.1 percentage points from the preliminary estimate released in April. This figure is double the initial forecast of 0.9% and represents the highest growth rate since the third quarter of 2020, when it was 2.3%.
Quarterly growth improved following a contraction of 0.2% in the first quarter of last year, with subsequent growth rates of 0.6% in the second quarter and 1.4% in the third quarter, before a slight decline of 0.1% in the fourth quarter. The economy rebounded sharply in the first quarter of this year.
Kim Hwa-yong, head of the Bank of Korea's National Income Division, stated, "The upward revision of 0.1 percentage points in the first quarter's real GDP growth rate will raise the annual growth rate by the same margin. We will adjust our forecasts based on changing conditions in the economic outlook in August." In May, the Bank of Korea projected a real GDP growth rate of 2.6% for the year.
The growth in the first quarter was primarily driven by increases in exports and capital investment. Exports rose by 5.9%, mainly in information technology (IT) products, while imports increased by 3.9%, driven by machinery, equipment, and automobiles.
This marked the highest growth rate for exports since the third quarter of 2020 (14.9%) and the highest for imports since the fourth quarter of 2021 (4.0%).
Construction investment grew by 1.4% due to increases in building and civil engineering projects, while capital investment surged by 6.6%, the highest growth rate since the first quarter of 2021 (9.2%).
Private consumption increased by 0.6%, supported by rising spending on goods like clothing and services such as finance, while government consumption fell by 0.4% due to a decrease in health insurance benefit expenditures.
Compared to the previous estimates, growth rates for capital investment (up 1.8 percentage points) and exports (up 0.8 percentage points) were revised upward, although imports also increased by 0.9 percentage points.
The contribution of each sector to the first quarter's growth rate showed that net exports (exports minus imports) boosted the growth rate by 1.1 percentage points. Although imports rose, the increase in exports was greater. Contributions from private consumption (0.3 percentage points), construction investment (0.2 percentage points), and capital investment (0.6 percentage points) accounted for a total of 0.7 percentage points from domestic demand.
In terms of sectors, manufacturing rose by 3.9%, driven by computers, electronics, and optical equipment, while information and communication technology (ICT) manufacturing surged by 15.4%. In contrast, non-ICT manufacturing saw a decline of 0.9%.
The nominal GDP growth rate for the first quarter reached 10.5%, the highest since the first quarter of 1976 (13.0%). The GDP deflator increased by 12.9% compared to the same period last year. The GDP deflator is a comprehensive price index that encompasses nominal GDP divided by real GDP, including exports and imports.
Kim emphasized that the rise in domestic prices is not the cause of this growth, but rather the significant improvement in the profitability of exporting companies. He noted, "We need to closely examine whether the increase in the GDP deflator is due to domestic price rises or increases in export prices. This rise in the GDP deflator is influenced by a 23.5% increase in export deflators, particularly in semiconductors."
He further stressed that the expansion of nominal GDP is not due to rising domestic prices. "In the 1970s and 1980s, and even in the 1990s, there were times when the gap between nominal GDP and real GDP exceeded 10%. It is important to distinguish this from cost-push inflation," he explained.
He added, "The expansion of corporate operating profits can be utilized as resources for fiscal stability through increased corporate taxes, as well as for fostering future industries and enhancing potential growth rates through structural reforms. This can positively impact domestic demand through increased research and development (R&D) and capital investment."
He also mentioned that international organizations like the Bank for International Settlements (BIS) measure household and government debt ratios relative to nominal GDP for international comparisons, stating, "The expansion of nominal GDP significantly lowers this ratio."
In the first quarter, nominal gross national income (GNI) surged by 11.0% compared to the previous quarter, marking the highest level in 50 years. The nominal net income from abroad rose from 9.2 trillion won to 13.7 trillion won, surpassing the nominal GDP growth rate of 10.5%.
The real GNI growth rate of 9.2% was at an all-time high. Improved terms of trade and an increase in real net income from abroad, which rose from 8.2 trillion won to 11.6 trillion won, significantly exceeded the real GDP growth rate of 1.8%.
The total savings rate for the first quarter was 41.7%, an increase of 5.7 percentage points from the previous quarter, reaching the highest level in 37 years and 3 months since the fourth quarter of 1988 (41.9%).
* This article has been translated by AI.
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