S. Korea's Q1 GDP Shrinks 0.2% amid political risk, U.S. trade tensions

The Korean economy posted negative growth in the first quarter.

In fact, quarterly growth has been very low for four straight quarters, meaning a warning sign to the local economy.

Shin Se-byuck reports.

According to the Bank of Korea on Thursday, South Korea's real gross domestic product, a key indicator of the economy, shrank by 0-point-2 percent on-quarter in Q1.

This marks the steepest contraction since the fourth quarter of 2022, when the economy,.. hit by the COVID-19 pandemic, contracted by 0.5 percent.

It's also the first negative growth in three quarters.

What's more concerning is that quarterly growth has remained below point-1 percent for four consecutive quarters, something that hasn't happened since related statistics were first compiled in 1960.

Breaking it down, private consumption and government spending fell by 0-point-1 percent, while construction investment plunged 3-point-2 and facility investment dropped 2-point-1 percent, dragging down the overall growth.

Exports declined by 1-point-1 percent, while imports dropped 2 percent, mostly due to falling energy imports.

In fact, the Bank of Korea had already hinted at a possible contraction last week.

It cited several factors, including prolonged political uncertainty at home and dampened economic sentiment triggered by U.S. tariff policies.

There's also the temporary halt to construction activity and a delay in demand for high-performance semiconductors like HBM chips.

Given these setbacks, South Korea's full-year growth is now expected to fall short of the Bank of Korea's February forecast of 1-point-5 percent.

An updated projection is expected next month, after factoring in the supplementary budget currently under review by the National Assembly and developments in global trade talks.

However, one expert says that these measures alone are not enough to bring about a full economic rebound.

"Korea's private consumption is worth around 5 quadrillion won in sales terms meaning it's so large that even a 15 to 30 trillion won supplementary budget would barely lift the growth rate by 0.5 percentage points. As for trade talks with the U.S., favorable terms for Seoul won't mean much if global demand remains sluggish."

To raise the growth rate by more than one percentage point, he emphasized, Korea must revive domestic consumption,.. and a cut in value-added tax could be key to that effort.

Shin Se-byuck, Arirang News.