Declines in exports and personal consumption led Asia’s fourth-largest economy to contract for the first time in two and a half years.
South Korea’s economy shrank in the final quarter of 2022 for the first time in two-and-a-half years as post-pandemic consumer spending faded and global trade fell, according to central bank estimates.
Gross domestic product (GDP) shrank 0.4 percent in the October-December period from the previous quarter, the Bank of Korea said on Thursday, after growing 0.3 percent in the July-September quarter. Economists polled by the Reuters news agency had expected a 0.3 percent decline.
The main declines in GDP since the second quarter of 2020 were losses of 5.8 percent in exports and 0.4 percent in private consumption, while government spending recorded strong growth of 3.2 percent, central bank estimates showed.
GDP in the fourth quarter of 2022 was 1.4 percent higher than a year earlier, compared with the 3.1 percent annual growth recorded in the third quarter and the 1.5 percent forecast in the survey.
The central bank estimates that in 2022 the full-year value of Asia’s fourth largest economy was 2.6 percent higher than in 2021, when it recorded growth of 4.1 percent. The average annual GDP growth from 2017 to 2021 was 2.3 percent per year.
The central bank’s latest full-year GDP growth forecast for 2023 is 1.7 percent, but its warning this month that it may cut that forecast prompted investors to bet that the bank’s interest rate hike on January 13 marked the end of a tightening cycle that had begun in August 2021.
South Koreans spent heavily on consumption after pandemic controls were lifted in early 2022, but spending behavior has since returned to more normal levels. This happened just as demand for South Korean exports fell as foreign economies weakened, vulnerable to rising interest rates aimed at curbing inflation.