South Korea's gross domestic product increased 0.6 percent in the second quarter from the previous quarter.
It is fortunate that it increased two straight quarters after seeing negative growth in the fourth quarter last year due to a slump in exports.
But Korea's GDP grew in the second quarter because imports decreased more than exports did. Exports shrank by 1.8 percent and imports by 4.2 percent.
It is worrying that exports, which have propelled South Korea‘s economic growth, are struggling to improve.
Exports fell for nine consecutive months until June. In July, the first month of the third quarter, there are no positive signs of a rebound in sight. Exports from July 1-20 went down 15.2 percent from a year earlier.
Second-quarter growth was fraught with signs of recession. Not only exports and imports but private consumption, government spending, construction and facilities investment all decreased.
Private-sector consumption dipped 0.1 percent after rising 0.6 percent to boost growth in the first quarter. Household ability to consume was not strong enough to sustain growth. To make matters worse, snowballing household debt greatly restricts consumers‘ capacity to spend.
Government expenditures decreased 1.9 percent. Although spending increased remarkably during the pandemic, as the pandemic wanes, spending is on the decline. It is not easy to increase fiscal spending again to stimulate the economy because of the national debt, which exceeds 1,000 trillion won ($786 billion), and concerns about inflation.
It is particularly worrying that investment, an index directly connected to growth potential, has slumped. Facility investment decreased rapidly (5 percent) in the first quarter and its decrease slowed to 0.2 percent in the second quarter, but it is still negative. Construction investment also shrank. Backsliding investment raises the likelihood of low growth becoming permanent.
The lengthy rainy spell, flood damage and the consequent surge of prices make it difficult to expect growth to gain momentum in the third quarter.
The International Monetary Fund on Tuesday slashed its 2023 economic growth outlook for South Korea from 1.5 percent to 1.4 percent.
It was the fifth consecutive time this year that the IMF revised down its growth outlook on South Korea.
The IMF, meanwhile, revised up its growth outlook on the global economy for this year from 2.8 percent to 3 percent.
South Korea was one of a few economies whose growth outlook the IMF lowered. It is concerning that the country seems to be going into a long-term depression while the global economy is recovering.
Exports among others must rebound to boost South Korea's growth, but this is anything but easy.
It is uncertain how rapidly the semiconductor and IT business will recover. China‘s economy, which takes up nearly 20 percent of South Korea’s exports, is not rebounding after the pandemic as fast as anticipated.
South Korea does not seem to have many choices. Corporate investment is the only breakthrough to revitalize its economy.
It is the job of the government and the National Assembly to create a virtuous circle of investment leading to employment and consumption. Above all, there should be no place for anti-corporate and excessively pro-labor bills, such as the so-called Yellow Envelope Law.
In the long term, South Korea must focus on diversification of export markets and promotion of the service industry.
China's reopening has had little impact on South Korea’s exports and growth.
As the IMF revised up its growth outlook on the United States and the eurozone, the Korean government and businesses need to concentrate on expanding export markets.
The IMF, raising its growth outlook for the global economy, cited the resilient service sector activity in the first quarter of 2023. The government needs to induce investment in high value-added service industries such as tourism and performances. The National Assembly must hasten to process basic legislation for service industry development, a bill which has been neglected for 12 years.
