The South Korean economy returned to firmer footing in the second quarter, expanding 0.6% from the previous three months, as a recovery in exports and domestic consumption helped offset weak investment and the impact of US import tariffs under President Donald Trump.
The growth marks a significant improvement from the first quarter’s 0.2% contraction and exceeded the Bank of Korea’s forecast of a 0.5% rise.
It also ended a prolonged stretch of anemic growth, the longest such spell since the 1997 Asian financial crisis, during which the economy – Asia’s fourth-largest – grew less than 0.2% in four consecutive quarters.
The latest figures represent the fastest growth pace since the first quarter of 2024, when the domestic economy expanded 1.2% on quarter.
From a year ago, the country’s gross domestic product (GDP) grew 0.5% in the second quarter, compared with zero growth in the first quarter, according to the central bank’s advance estimates on Thursday.
SEOUL-WASHINGTON TARIFF TALKS RESCHEDULED
The second quarter’s GDP growth rebound was driven by a decent 4.2% rise in exports – their sharpest gain since the third quarter of 2020 – as demand for semiconductors and petrochemical products held firm despite protectionist measures from Washington.
Analysts said Korean companies expedited overseas shipments ahead of anticipated adjustments to US trade policy, in particular, tariffs.
The impact of the US’ aggressive tariff plan on Korean exports was also limited in the second quarter, as the US’ reciprocal tariffs, set at 25% for Korea, were postponed.
In April, Trump postponed the implementation of reciprocal tariffs on Korea and other trading partners for 90 days, later extending the deadline to Aug. 1. The Seoul government is currently going all-out in last-minute trade negotiations with Washington to lower tariff rates.
Korea’s trade negotiators, led by Finance Minister Koo Yun-cheol, are in Washington for talks with US Treasury Secretary Scott Bessent. The trade negotiations, however, were cancelled due to a scheduling conflict and will be rescheduled, according to Seoul officials.
BOK data showed second-quarter imports rose 3.8%, led by energy-related goods such as crude oil and liquefied natural gas.
TWO EXTRA BUDGETS SEEN BOOSTING PRIVATE CONSUMPTION
Private consumption, which weighed on growth in the first quarter, rose 0.5%, buoyed by stronger spending on cars and leisure services due to early effects of the government’s two supplementary budgets this year. Government expenditures, led by increased national health insurance spending, rose 1.2% from the first quarter.
Fixed investment remained a drag, however.
Facility investment fell 1.5% as purchases of semiconductor equipment and transport machinery slowed. Construction investment declined by the same margin amid continued weakness in the building and civil engineering sectors.
Real gross domestic income, a measure of domestic purchasing power that reflects changes in terms of trade, increased 1.3%, outpacing real GDP, thanks to favorable shifts in export prices.
By industry, the manufacturing sector grew 2.7% in the second quarter from the previous quarter, led by electronics and optical devices.
The construction sector contracted by 4.4%, while electricity and utilities output fell 3.2%.
BOK’S MONETARY POLICY
Despite the rebound, economists warn that Korea’s growth outlook remains fragile as investment hesitancy and global uncertainties persist.
The central bank, which in May revised its full-year growth forecast to 0.8% from 1.5% earlier, projects third- and fourth-quarter growth of 0.7% and 0.6%, respectively. The GDP expanded 2% in 2024.
The BOK is slated to provide its latest growth outlook for this year next month.
During its latest monetary policy review meeting on July 10, the central bank held its policy rate steady at 2.5%, citing a stable inflation rate and lower growth rates.
Korea’s headline inflation stood at 2.2% in June, just slightly above the BOK’s 2% target.
By In-Soo Nam
isnam@hankyung.com
Jennifer Nicholson-Breen edited this article.
