S.Korean economy shrinks to record low

The South Korean economy shrank in the final quarter of 2022, marking the first contraction since Q2 2020, as exports dropped and consumer spending decreased due to rising interest rates, according to the Bank of Korea. The country’s GDP contracted by 0.4% from the previous quarter.

The Bank of Korea raised borrowing costs for the tenth time in 18 months in January, to combat inflation which reached 5% in December. The economic contraction could prompt the central bank to slow its pace of interest rate hikes, as central banks worldwide look to ease their tightening moves.

However, consumer inflation remains a major concern for the Bank of Korea. The central bank reported that private consumption fell 0.4% due to decreased spending on goods and services, including home appliances, clothing, accommodation, food, and entertainment. Exports also decreased by 5.8%, primarily in the semiconductor and chemical sectors. Imports dropped 4.6% due to decreased imports of basic metals and crude oil.

Despite the contraction, the economy grew by 1.4% on an annual basis in the quarter and 2.6% for the entire year of 2022. The Bank of Korea estimated that the country’s economy will grow by 1.7% in 2023 and inflation will be around 3.6%.