South Korea's economy showed stronger-than-expected growth in the second quarter of this year. Semiconductor exports offset the negative impacts of rising oil prices due to the ongoing conflict in the Middle East. As a result, expectations for an annual growth rate in the 3% range have increased.
According to the Bank of Korea on July 23, the preliminary real GDP growth rate for the second quarter increased by 0.6% compared to the previous quarter, significantly exceeding the forecast of 0.2% made in May. Year-on-year, the growth rates were nearly identical at 3.8% for the first quarter and 3.7% for the second quarter.
Despite the pressures on growth from high oil prices linked to the Middle East conflict, strong semiconductor exports were analyzed to have mitigated these effects.
Lee Dong-won, head of the Bank of Korea's Economic Statistics Division, stated, "There were concerns that the impact of the Middle East conflict would become more pronounced in the second quarter, but strong growth continued. The robust growth in the second quarter can be attributed to the ongoing semiconductor boom and the relatively limited negative effects of the conflict."
He explained that there was no base effect from the high growth in the first quarter. "Typically, when the previous quarter's growth rate is very high, the next quarter sees a significant drop or negative growth, which is referred to as a base effect. However, despite a growth rate of 1.8% in the first quarter, the continuation of 0.6% growth indicates that the growth trend has strengthened," he said.
By sector, private consumption increased by 0.4% as both goods and services rose, while government consumption grew by 0.2%, primarily due to health insurance benefit expenditures. Construction investment decreased by 0.2% due to a decline in civil engineering, but facility investment rose by 0.2%, driven by increased spending on semiconductor manufacturing machinery.
Investment in intellectual property products surged by 3.3%, marking the highest growth rate since the first quarter of 2012 (5.4%). This increase was influenced by the strong performance of semiconductor exports, with significant rises in research and development (R&D) investments in the semiconductor sector, as well as expanded investments in cloud-based software and related security solutions in the financial sector.
Exports increased by 1.4%, led by semiconductors, machinery, and equipment, while imports rose by 0.8%, primarily in automobiles and machinery. The contribution of semiconductors, which accounted for more than half of the growth in the first quarter, fell to below 30% in the second quarter.
In terms of contributions to the second quarter growth rate, domestic demand, including consumption and investment, contributed 0.3 percentage points to growth. Net exports (exports minus imports) also boosted growth by 0.3 percentage points, as exports grew more than imports.
Private consumption contributed 0.2 percentage points, while government consumption had no impact (0.0 percentage points). Both construction and facility investments also contributed 0.0 percentage points.
By industry, manufacturing increased by 1.2%, driven by computers, electronics, and optical instruments. The electricity, gas, and water supply sector decreased by 1.3%, primarily due to a decline in water and raw material recycling, while the construction sector fell by 1.9%, mainly in civil engineering.
Agriculture, forestry, and fisheries saw a decrease of 7.1%, while the service sector grew by 1.1%, supported by increases in retail, accommodation and food services, finance and insurance, and information and communication.
Real Gross Domestic Income (GDI) in the second quarter increased by 15.6% compared to the same period last year. This GDI growth rate is the largest since the first quarter of 1988 (16.4%).
The gap between real GDP growth and GDI has widened compared to the first quarter. Real GDI reflects the real purchasing power of income earned through production activities. The surge was influenced by rising prices of export goods, including semiconductors, which improved trade conditions.
With the strong growth in the first half of the year, the annual growth rate is approaching the 3% range. Lee noted, "Given the unexpectedly strong growth in the first half, if the average growth rate in the second half is -0.1% compared to the first half, we can achieve an annual growth rate of 3%. If the annual growth rate reaches the 3% range this year, it would be the first time in five years since 2021."
* This article has been translated by AI.
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