South Korea economy shrinks, but growth expected from China reopening

South Korea’s economy experienced its first quarterly contraction since the second quarter of 2020, according to preliminary estimates released by the central bank.

Real gross domestic product fell 0.4% in the last quarter of 2022 compared to the previous quarter, according to the Bank of Korea – reversing the gains seen in the previous three months and shrinking more than the 0.3% contraction forecast by economists in a Reuters poll. .

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South Korea’s worsening economic situation signals that the recovery, if seen by “revengeful” consumers who put the pandemic on hold, may be slow.

A 5.8% drop in exports dragged down the overall reading, along with a 4.1% drop in manufacturing and a 0.4% contraction in private consumption, the central bank said in a release.

Still, benchmark South Korea Kospi The stock index continues to show gains for the fourth consecutive session on Friday, trading 0.7% higher in the afternoon. At Korean won hovering at a slightly stronger level, ending at 1,232.13 against the US dollar.

Goldman Sachs Senior Asia Economist Goohoon Kwon said South Korea’s trade is likely to pick up from China’s reopened economy.

“The reopening of China will be very positive for Korea, especially since there is evidence that supply disruptions occurred in November – which significantly reduced demand for chips and electronic components, which should be corrected going forward,” he said on CNBC Asia’s “Squawk Box.”

Goh’s company expects South Korea’s economy to pick up early this year.

“The first quarter, we expect positive growth due to the re-opening of China, and also fiscal spending, and it is almost the end [interest rate] hiking cycle,” he said.

“Our finding is that we may find one more 25 [basis point] increase before pausing for the rest of Q1,” Goh said, noting that the risk to that scenario would be a strong US labor market, which would give the Federal Reserve more room for further rate hikes.