The Bank of Korea said on the 22nd that real gross domestic product (GDP) in the first quarter is estimated to have grown 1.7% from the previous quarter. The growth rate is the highest since the third quarter of 2020 (2.2%), beating the Bank of Korea's forecast (0.9%). A semiconductor boom drove exports and investment, while only part of the fallout from the Middle East war was reflected. The impact of the Middle East situation is expected to be reflected mainly in the second quarter.
Real GDP in the first quarter grew 3.7% from a year earlier. It is the biggest growth since the fourth quarter of 2021 (4.2%). Exports rose 5.1% from the previous quarter and 10.3% from a year earlier. Imports increased 3% from the previous quarter and 7.7% from a year earlier.
Private consumption increased 0.5% from the previous quarter and 2.6% from a year earlier, showing a solid trend. Construction investment rose 2.8% from the previous quarter thanks to semiconductor plant expansions but fell 1.4% from a year earlier, not fully recovering. Facility investment also increased 4.8% from the previous quarter and 3.6% from a year earlier on the back of semiconductors.
Real gross domestic income (GDI) increased 7.5% from the previous quarter and 12.3% from a year earlier, which was analyzed as due to higher prices for semiconductor exports.
◇ Strong exports and investment led by semiconductors… economic dependence has increased
The reason real GDP in the first quarter beat the forecast is the semiconductor boom. As of the end of last month, the global DRAM sales growth rate recorded 151.3% year over year. That is up 77.2 percentage points from the growth rate at the end of last year (74.1%). Over the same period, the semiconductor export growth rate was 139.1%, more than triple the previous quarter (43.9%).
The increase in facility investment also stemmed from a 32.7% year-over-year rise in the volume of imports of semiconductor manufacturing machinery in the first quarter. The advancement of the start date for operating production facilities (fabs) at the Yongin semiconductor cluster from May next year to February of the same year also had a positive effect.
However, there are concerns that Korea's dependence on semiconductors has increased further. A Bank of Korea official said, "We estimate that semiconductor manufacturing accounts for about 55% of the increase in GDP in the first quarter." Without the semiconductor boom, the GDP growth rate could have been cut in half.
◇ Limited impact from the Middle East war in the first quarter… likely to be reflected from the second quarter
The fact that the impact of the Middle East war was not fully reflected in the first quarter also contributed to the surprise growth. A Bank of Korea official said, "Although the Middle East war broke out on Feb. 28, Korean ships entered the country through the Strait of Hormuz until late March," adding, "Of the 90 days in the first quarter, the impact of the Middle East war was about 10 days."
The aftermath of the Middle East war is effectively expected to be reflected in the second quarter. As prices rise, private consumption is expected to slow and growth to decelerate. Whether the semiconductor cycle will hold up after the Middle East war is also key. The Ministry of Economy and Finance plans to swiftly execute more than 85% of the 10.5 trillion won secured through the Middle East war supplementary budget in the first half.
A Ministry of Economy and Finance official said, "The second-quarter growth rate may fall from the previous quarter due to the base effect from the sharp first-quarter growth and the full onset of the Middle East war's impact."