A cameraman takes video footage of a stock index board after the opening of the South Korea stock market at the Korea Exchange in Seoul on January 2, 2023. PHOTO AFP SEOUL South Korea's government promised strong support for exporters after it posted its first economic contraction in 2.5 years on Thursday, due to a crash in exports, and faced a possibility that it was in a recession.
Finance Minister Choo Kyung-ho pledged to support measures for exporters, such as tax breaks and administrative help, as part of a global trend and saying a return to growth in the current quarter is possible.
The gross domestic product GDP shrank by 0.4 percent in the October-December period from the previous quarter, according to Central bank estimates. Economists had predicted a fall of 0.3 percent in a Reuters poll.
At a meeting that was open to reporters, Choo said that the government will focus on reactivating exports and investment, as well as pushing ahead with deregulation efforts and providing tax and financial support.
The central bank estimates that government spending posted a 3.2 percent increase in GDP, leading the first drop since the second quarter of 2020, and losses of 5.8 percent in exports and 0.4 percent in private consumption.
There are signs of weakness in the first quarter. Exports per working day were 8.8 percent less than a year ago, as a result of a slump in the property market.
Economists usually define a recession as two or more successive quarters of contraction. If the first quarter GDP falls, a South Korean recession will be judged to have begun almost four months ago. The economy was in a recession in the first half of 2020.
On Jan 13 there was a chance that the country was falling into recession, according to the Bank of Korea Governor Rhee Chang-yong. He said that we are on the border and should look at more data to provide details in February.
Markets were muted after Thursday's GDP data, because it was close to expectations.
The result confirmed the market's view that the central bank's Jan 13 interest rate rise had marked the end of a 17 month tightening cycle and that the Bank of Korea would have to cut its policy rate this year.
It's likely that the reopening of China's COVID-related curbs will help but exports won't turn around immediately due to weakness in other major economies, said Park Sang-woo, economist at DB Financial Investment.
Park expected GDP to contract further in the current quarter or, at best, to hold steady.
The full-year value of the economy, Asia's fourth-largest, had been 2.6 percent larger in 2022 than in 2021, when it showed growth of 4.1 percent. The growth in full-year GDP for 2017 to 2021 was 2.3 percent a year.