From Contraction to Highest Growth in 5 Years, South Korea's Economy Jumps 1.8 Percent

JAKARTA - After shrinking in the previous quarter, South Korea's economy turned sharply at the beginning of the year. Supported by strong exports and improved domestic consumption, the country's economic growth reached its highest level in more than five years.

Based on data from the Bank of Korea (BOK) quoted by Yonhap, Tuesday, June 9, South Korea's real gross domestic product (GDP) grew 1.8 percent in the first quarter compared to the previous quarter. The figure is 0.1 percentage points higher than the central bank's initial estimate.

The achievement was the highest quarterly growth since the third quarter of 2020, when the South Korean economy grew 2.3 percent.

On an annual basis, South Korea's economy grew 3.8 percent in the first quarter. The figure jumped from 1.6 percent in the previous quarter and became the highest annual growth since the fourth quarter of 2021.

The central bank explained that the revision of the growth increase was driven by the latest data which showed that investment in production facilities and household consumption was stronger than the previous estimate.

"The 0.1 percentage point increase in the first quarter GDP is expected to increase annual growth by 0.1 percentage points," said Kim Hwa-yong, director of the BOK's Production, Expenditure, and Revenue Division, as reported by Yonhap.

According to Kim, the change is expected to be reflected in the revision of the economic growth projection to be announced by the central bank in August.

The economic recovery came after South Korea recorded a 0.1 percent contraction in the previous quarter due to a weakening manufacturing sector.

In the first quarter, exports became one of the main supports for growth. Its value rose 5.9 percent compared to the previous quarter, the highest increase since the third quarter of 2020.

The increase in exports was driven by strong global demand for semiconductors, machinery, and vehicles.

In terms of investment, spending on production facilities grew 6.6 percent, the highest in the last four years. Construction investment rose 1.4 percent.

Meanwhile, household consumption increased by 0.6 percent. On the other hand, government spending fell by 0.4 percent.

BOK noted that domestic demand contributed 0.7 percentage points to the first quarter's economic growth. Meanwhile, net exports - the difference between the value of exports and imports - contributed more, namely 1.1 percentage points.

Nominally, as reported by Yonhap, South Korea's GDP jumped 10.5 percent compared to the previous quarter. This is the highest increase since 1976. On an annual basis, nominal GDP increased 17.1 percent.

"Nominal GDP growth was driven by increased profits of exporting companies as well as domestic price increases," Kim said.

The central bank also reported that real gross national income or Gross National Income (GNI) rose 9.2 percent in the first quarter. The figure was the highest in quarterly records.

Unlike GDP, which measures the value of production within a country, GNI measures the total income received by the population of a country.

Nominal GNI also jumped 11 percent compared to the previous three months, recording the fastest growth in 50 years.

Meanwhile, South Korea's per capita GNI last year was revised to rise to US$36,963, slightly higher than the provisional data of US$36,855 announced in March.

South Korea's economic outlook is also still quite positive. Supported by government stimulus and exports that remain strong, especially in the semiconductor sector, the central bank expects the momentum of growth to continue in 2026.

BOK previously raised its 2026 economic growth projection to 2.6 percent. A number of international institutions have also improved their forecasts. The International Monetary Fund (IMF) and the Asian Development Bank (ADB) both project South Korea's economy to grow by 1.9 percent, while the Korea Development Institute (KDI) raised its 2026 growth projection to 2.5 percent from the previous 1.9 percent.

With stronger-than-expected growth, market attention is now focused on the Bank of Korea's monetary policy meeting in July. The central bank has begun to signal a possible interest rate adjustment if the economic recovery trend continues.