South Korea beat expectations for growth in the fourth quarter of 2023 thanks to an export recovery which more than offset slowing domestic demand, although some analysts believe Asia's fourth-largest economy will struggle to maintain its momentum. Gross domestic product (GDP) for the October-December quarter was 0.6 per cent higher than the preceding three months on a seasonally adjusted basis, the Bank of Korea's (BOK) advance estimates showed on Thursday.

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That compares with an expansion of 0.6 per cent in the prior quarter and a median 0.5 per cent increase tipped in a Reuters survey, in which economists' forecasts ranged from 0.1 per cent to 0.9 per cent.
Looking ahead, some analysts see South Korea's economic momentum as frail due to weakening domestic demand, high interest rates and the sluggish recovery of exports after a year-long downturn in the semiconductor industry. "Economic growth in Korea held up better than expected in Q4 but we expect the economy to grow below trend over the next couple of quarters as export growth softens in near term while tight fiscal and monetary policy continue to curtail domestic demand," said Shivaan Tandon, Emerging Asia Economist at Capital Economics.

A breakdown of the GDP figures showed exports expanded 2.6 per cent, while imports rose 1.0 per cent, bringing net growth contribution of 0.8 percentage points, up from 0.5 percentage points in the previous quarter. On the domestic side, however, growth in private consumption softened to 0.2 per cent from 0.3 per cent the quarter before, while construction investment dropped 4.2 per cent, the steepest since Q1 2012. Facility investment jumped 3.0 per cent, the biggest gain since Q3 2022, while government spending increased by 0.4 per cent, the most since Q1 2023.

RISKS TO EXPORT GROWTH

On an annual basis, South Korea in the fourth quarter grew 2.2 per cent, after a gain of 1.4 per cent in the third quarter and compared with a 2.1 per cent rise expected by economists. That was the fastest since the third quarter of 2022. "How much exports make up for worsening domestic conditions will be the key going forward," said Park Sang-hyun, chief economist at HI Investment Securities. "Exports will continue to improve but the pace may not be as fast as it is now expected," Park said, citing risks over the Chinese economy and weak global manufacturing activity.

Exports out of the trade-reliant economy grew for a third straight month in December, led by improving chip sales, although weak demand from China remained a drag. The Bank of Korea hinted this month that it may pivot towards monetary easing along with its global peers, as the central bank held interest rates steady for an eighth meeting. In 2023, South Korea's economy grew 1.4 per cent, a three-year low after gains of 2.6 per cent in 2022 and 4.3 per cent in 2021. The economy is expected to grow 2.1 per cent in 2024, according to the BOK.