South Korea’s economy contracted for the first time in two years, but growth is expected from China’s reopening

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A customer looks at a pack of fried mix in a supermarket in Seoul on May 14, 2020.

Seong Joon Cho | Bloomberg | Getty Images

South Korea’s economy experienced its first quarterly contraction since the second quarter of 2020, according to preliminary estimates from the central bank.

Real gross domestic product fell by 0.4% in the last quarter of 2022 compared to the previous quarter, according to the Bank of Korea – a reversal of the previous three months’ gains and a contraction more than the contraction of 0.3% as predicted by economists in a Reuters poll.

The deteriorating conditions in South Korea’s economy indicated that a recovery, once seen as a result of “revenge spending” coming out of the pandemic, could fade faster than expected.

A sharp 5.8% drop in exports weighed on the overall reading, alongside a 4.1% fall in output and a 0.4% contraction in private consumption, the central bank said in its press release.

Still the benchmark of South Korea Kospi the stock index continued to show gains for a fourth consecutive session on Thursday, trading 0.7% higher in the afternoon. The Korean won hovered at slightly stronger levels, most recently standing at 1,232.13 against the US dollar.

Goldman Sachs Senior Asia Economist Goohoon Kwon said South Korean trade is likely to recover from a fully reopened Chinese economy.

“China’s reopening will be significantly positive for Korea, especially given that there are indications that supply disruptions occurred in November – which significantly reduced demand for chips and electronic components, which should be corrected in the future,” he said. on CNBC’s “Squawk Box Asia.”

Goh’s company expects South Korea’s economy to pick up early this year.

“In the first quarter, we expect positive growth given China’s reopening, as well as tax releases coming forward, and nearing the end of the [interest rate] walking bike,” he said.

“Our view is they might go for another 25 [basis point] for a pause for the rest of the first quarter,” Goh said, noting that a resiliently strong US labor market would be a risk to that scenario, giving the Federal Reserve more room for further rate hikes.



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