By Jihoon Lee and Choonsik Yoo
SEOUL (Reuters) – South Korea’s government promised strong support for exporters after the country posted on Thursday its first economic contraction in 2/1-2 years due mainly to a crash in exports.
Playing down the economic slowdown as part of a global trend, Finance Minister Choo Kyung-ho pledged prompt support measures for exporters, such as tax breaks and administrative help.
Central bank estimates showed gross domestic product (GDP) shrank 0.4% in the October-December period from the previous quarter. Economists in a Reuters poll had expected a 0.3% fall.
“The government will focus policy resources on reactivating exports and investment, such as pushing ahead with deregulation efforts and offering tax and financial support,” Choo said at a meeting of officials that was open to reporters.
Leading the first GDP decline since the second quarter of 2020 were losses of 5.8% in exports and 0.4% in private consumption, whereas government spending posted a sharp 3.2% increase, according to the central bank estimates.
Markets showed a muted reaction to the data, which was largely in line with repeated warnings in recent weeks by the government and central bank.
Still, the GDP data cemented the market’s view that the central bank’s Jan. 13 interest rate rise had marked the end of a 17-month tightening cycle and that the Bank of Korea would even be pressured to start cutting its policy rate this year.
“Effects from China’s reopening (from COVID-related curbs) will help but exports won’t turn around immediately due to weakness in other major economies,” said Park Sang-woo, economist at DB Financial Investment.
The central bank estimated that in 2022 the full-year value of the economy, Asia’s fourth-largest, had been 2.6% larger than in 2021, when it showed growth of 4.1%. The average growth in full-year GDP for 2017 to 2021 was 2.3% a year.
(Reporting by Jihoon Lee and Choonsik Yoo; Editing by Bradley Perrett)