South Korea's thrift shrank for the initial two years, but the development is anticipated from China's restarts

January 27, 2023: South Korea’s economy saw its initial quarterly contraction in the second quarter of 2020, the advance estimates released by the central bank.

Actual gross domestic product decreased by 0.4% in the quarter of 2022 compared to the last quarter, the Bank of Korea stated, reversing gains experienced in the previous three months and shrinking over the 0.3% contraction forecast by economists.

The worsening conditions in South Korea’s economy signalled that a recovery, seeing the coming from “revenge-spending” consumers putting the pandemic behind them, maybe fade sooner than expected.

A sharp 5.8% decline in exports decreased the overall reading, alongside a 4.1% decrease in manufacturing and a 0.4% contraction in private consumption, the central bank stated in its release.

Still, South Korea’s benchmark Kospi stock index continues to show gains for a consecutive session, trading 0.7% higher in the afternoon. The Korean won hovered at almost more substantial levels, last at 1,232.13 against the U.S. dollar.

“China’s reopening will be hugely positive for Korea, especially given there’s proof that supply disruptions took place in November, decreasing the demand for chips and electronic elements very significantly, which should be rectified going forward,” he said.”

Goh’s company anticipates South Korea’s economy to rise early this year.

“First quarter, we anticipated positive growth given China’s reopening, and also front-loading of financial spending, and almost the end of the hiking cycle,” he said.

“Our experience is that they might go for one more 25 hikes before a pause for the rest of Q1,” Goh stated, noting that the risk to that scenario would be a resiliently strong U.S. labour market, which would give the Federal Reserve for a room for further rate hikes.