Q2 GDP Grows 0.6% Surpassing Market Expectations... GDI Hits 38-Year High (Update)

Bank of Korea Releases Advance Estimates for Q2 Real GDP and GDI

GDP Up 3.7% Year-on-Year, Sustaining First Quarter Growth Pattern

Shin Hyun Song Highlights GDI: 15.6% YoY 'Surprise'

In the second quarter of this year, the South Korean economy maintained its growth momentum, recording a growth rate of 0.6% and continuing the strong trend seen in the “surprise growth” of the first quarter. This figure significantly exceeded previous forecasts, and on a year-on-year basis, the economy grew by 3.7%, effectively marking two consecutive quarters of better-than-expected expansion. Real Gross Domestic Income (GDI), which reflects the actual income generated through production activities, surpassed the double-digit growth posted in the first quarter, reaching its highest level since 1988.

The Bank of Korea announced on the 23rd that the preliminary real Gross Domestic Product (GDP) growth rate for the second quarter was 0.6% compared to the previous quarter. This far exceeded the Bank of Korea’s earlier forecast of 0.2% published in May.

The significance of this growth rate lies in the fact that it marks two consecutive quarters of expansion, following a “surprise growth” of 1.8% in the first quarter of this year. On a year-on-year basis, the economy grew by 3.7%, similar to the 3.8% growth rate in the first quarter.

This rise in growth rate can be attributed to continued recovery in consumption as well as increases in exports and facility investment, led by the semiconductor industry.

Excluding construction investment, domestic demand remained robust, with both consumption and facility investment showing growth. Private consumption increased by 0.4% quarter-on-quarter, driven by higher spending on goods such as home appliances as well as services including food and accommodation. Government consumption also rose by 0.2%—returning to growth for the first time in a quarter—mainly due to increased health insurance benefit spending.

Facility investment increased by 0.2% compared to the previous quarter, as there was an uptick in machinery such as semiconductor manufacturing equipment, maintaining the strong momentum from the first quarter (6.6%). In contrast, construction investment declined by 0.2% due to a reduction in civil engineering projects.

Exports grew by 1.4% quarter-on-quarter, mainly led by semiconductors, machinery, and equipment. Imports also increased by 0.8%, with growth registered in automobiles, machinery, and equipment.

In terms of expenditure components, both domestic demand and exports contributed evenly to second-quarter growth. The contribution from domestic demand was 0.3 percentage points, with consumption adding 0.2 percentage points and investment in intellectual property products adding another 0.2 percentage points. By economic agent, the contribution from private consumption (0.6 percentage points) was higher than that from the government (-0.3 percentage points), highlighting the prominent role of private sector-led growth.

The contribution from net exports (exports minus imports) was 0.3 percentage points. While imports contributed 0.3 percentage points, exports made a larger contribution of 0.7 percentage points. However, both domestic demand and net exports contributed less compared to the “surprise” 1.8% growth seen in the first quarter of this year, with respective declines of 0.4 and 0.8 percentage points.

By industry, only manufacturing and services recorded positive growth. Manufacturing grew by 1.2% quarter-on-quarter, based on gains in computers, electronic and optical devices, as well as machinery and equipment. The services sector also rose 1.1%, led by wholesale and retail trade, accommodation and food services, finance and insurance, and information and communications.

On the other hand, agriculture, forestry, and fisheries declined by 7.1% quarter-on-quarter, mainly due to decreases in crop and fishing production. The electricity, gas, and water supply industry shrank by 1.3%, driven by reductions in water supply and raw material recycling. The construction sector, which had seen a 2.2% rise in the first quarter—the first increase in eight quarters—fell by 1.9% as civil engineering projects slowed, resuming its downward trend.

In the second quarter, real GDI surged by 3.6% compared to the previous quarter, far outpacing GDP growth. On a year-on-year basis, real GDI jumped 15.6%, the highest since the first quarter of 1988 (16.4%). This was driven by improved terms of trade, as export prices for goods such as semiconductors rose. Real GDI reflects the real purchasing power of income earned through productive activities.

This content was produced with the assistance of AI translation services.