Has South Korea's Economy Really Shrunk by 0.2% in Q1?
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Synopsis
South Korea's economy has seen its first negative growth in nine months, contracting by 0.2% in Q1 2023. With political turmoil and U.S. tariffs impacting trade, experts foresee challenges ahead. Discover the factors behind this downturn and its implications for the South Korean market.
Key Takeaways
- South Korea's economy contracted by 0.2% in Q1 2023.
- This marks the first negative growth in nine months.
- The contraction is attributed to political instability and U.S. tariff uncertainties.
- Exports and facility investments both saw declines.
- The GNI reached a record high despite the contraction.
Seoul, June 5 (NationPress) The South Korean economy has seen a contraction of 0.2 percent in the first quarter of this year, remaining consistent with previous estimates, according to data released by the central bank on Thursday. This downturn is primarily attributed to a domestic political crisis and uncertainties arising from the aggressive tariff measures implemented by U.S. President Donald Trump's administration.
The nation’s real gross domestic product (GDP)—a crucial indicator of economic performance—decreased by 0.2 percent during the January-March period compared to the previous quarter, marking the first instance of negative growth in nine months, as indicated by preliminary figures from the Bank of Korea (BOK).
In the first quarter of 2024, the South Korean economy had grown by 1.3 percent but faced a decline in the second quarter with a 0.2 percent drop, followed by a modest recovery with 0.1 percent growth in both the third and fourth quarters, as reported by Yonhap news agency.
Exports fell by 0.6 percent from the preceding quarter in the first quarter, largely due to reduced shipments of chemicals, machinery, and equipment.
Facility investment saw a decrease of 0.4 percent on-quarter, marking its lowest performance since the first quarter of 2024.
Investment in construction plummeted by 3.1 percent, while private spending dipped by 0.1 percent in the first quarter, primarily driven by a decline in demand for services.
The unexpected contraction is linked to former President Yoon Suk Yeol's declaration of martial law on December 3, which fueled political turmoil and dampened domestic demand.
The sweeping tariff policies from the U.S. have also posed challenges to the trade-dependent South Korean economy, with Trump imposing reciprocal tariffs, including a 25 percent levy on South Korean goods—though the implementation was postponed for 90 days. Ongoing trade negotiations between South Korea and the United States aim to finalize a “package” agreement on trade and associated issues by July 8, coinciding with the end of the 90-day suspension of U.S. tariffs.
Recently, the central bank significantly revised its growth forecast for South Korea's economy, lowering it to 0.8 percent from an earlier prediction of 1.5 percent, citing faltering consumption and slowing export growth amid uncertainties linked to Washington's tariff policies.
The BOK also updated its figures regarding the nation's gross national income (GNI) for 2024.
The per capita GNI increased by 1.5 percent year-on-year to US$36,745 last year. In Korean won, the GNI surged by 6.1 percent to a record high of 50.12 million won. Initially, the central bank had estimated the per capita GNI growth at 1.2 percent to $36,624.
Point of View
It is crucial to recognize the complexities of South Korea's current economic situation. While the contraction reflects certain domestic and international challenges, it is imperative for the nation to navigate these issues with strategic solutions that prioritize recovery and growth. Our nation stands resilient, and with the right measures, we can overcome these hurdles.
NationPress
09/09/2025
Frequently Asked Questions
What caused the contraction in South Korea's economy?
The contraction was primarily due to a domestic political crisis and uncertainties from U.S. President Trump's aggressive tariff measures.
How much did South Korea's GDP shrink in Q1 2023?
South Korea's GDP contracted by 0.2 percent in the first quarter of 2023.
What are the implications of the U.S. tariffs on South Korea?
The U.S. tariffs have significantly impacted South Korea's trade-dependent economy, leading to reduced export activities and increased uncertainties.
What is the revised growth forecast for South Korea for this year?
The central bank has revised its growth forecast for South Korea to 0.8 percent from a previous estimate of 1.5 percent.
How did the GNI perform last year?
Last year, the per capita GNI advanced by 1.5 percent to $36,745, reaching an all-time high.
