South Korea beat expectations for growth in the fourth quarter of 2023 thanks to an export recovery which more than offset slowing domestic demand, although some analysts believe Asia's fourth-largest economy will struggle to maintain its momentum.
Gross domestic product (GDP) for the October-December quarter was 0.6% higher than the preceding three months on a seasonally adjusted basis, the Bank of Korea's (BOK) advance estimates showed on Thursday.
That compares with an expansion of 0.6% in the prior quarter and a median 0.5% increase tipped in a Reuters survey, in which economists' forecasts ranged from 0.1% to 0.9%.
Looking ahead, some analysts see South Korea's economic momentum as frail due to weakening domestic demand, high interest rates and the sluggish recovery of exports after a year-long downturn in the semiconductor industry.
"Economic growth in Korea held up better than expected in Q4 but we expect the economy to grow below trend over the next couple of quarters as export growth softens in near term while tight fiscal and monetary policy continue to curtail domestic demand," said Shivaan Tandon, Emerging Asia Economist at Capital Economics.
A breakdown of the GDP figures showed exports expanded 2.6%, while imports rose 1.0%, bringing net growth contribution of 0.8 percentage points, up from 0.5 percentage points in the previous quarter.
On the domestic side, however, growth in private consumption softened to 0.2% from 0.3% the quarter before, while construction investment dropped 4.2%, the steepest since Q1 2012.
Facility investment jumped 3.0%, the biggest gain since Q3 2022, while government spending increased by 0.4%, the most since Q1 2023.
RISKS TO EXPORT GROWTH
On an annual basis, South Korea in the fourth quarter grew 2.2%, after a gain of 1.4% in the third quarter and compared with a 2.1% rise expected by economists. That was the fastest since the third quarter of 2022.
"How much exports make up for worsening domestic conditions will be the key going forward," said Park Sang-hyun, chief economist at HI Investment Securities.
"Exports will continue to improve but the pace may not be as fast as it is now expected," Park said, citing risks over the Chinese economy and weak global manufacturing activity.
The Bank of Korea hinted this month that it may pivot towards monetary easing along with its global peers, as the central bank held interest rates steady for an eighth meeting.
In 2023, South Korea's economy grew 1.4%, a three-year low after gains of 2.6% in 2022 and 4.3% in 2021. The economy is expected to grow 2.1% in 2024, according to the BOK.
