Seoul: The South Korean economy shrank by 0.2 percent in the first quarter of this year, consistent with earlier projections, as reported by central bank data on Thursday. This contraction is attributed primarily to a domestic political crisis and uncertainties from U.S. President Donald Trump's aggressive tariff policies.
According to Yonhap News Agency, the country's real gross domestic product (GDP), a crucial indicator of economic growth, decreased by 0.2 percent during the January-March period compared to the previous three months. This decline marks the first instance of negative growth in nine months, as per preliminary data from the Bank of Korea (BOK).
South Korea's economy had experienced a 1.3 percent expansion in the first quarter of 2024. However, it faced a downturn in the second quarter with a 0.2 percent decline, followed by a modest 0.1 percent growth in both the third and fourth quarters. The first quarter also saw a 0.6 percent drop in exports, primarily due to reduced shipments of chemicals, machinery, and equipment.
Facility investment witnessed a 0.4 percent on-quarter decline, marking its weakest performance since the first quarter of 2024. Additionally, construction investment fell by 3.1 percent, and private spending decreased by 0.1 percent, largely due to a downturn in demand for services.
The unexpected negative growth occurred as former President Yoon Suk Yeol's imposition of martial law on December 3 and the ensuing political chaos adversely affected domestic demand. The U.S.' comprehensive tariff measures further impacted the trade-reliant South Korean economy.
Trump's announcement of reciprocal tariffs, including a 25 percent levy on South Korean goods, was postponed for 90 days, and trade negotiations are ongoing between South Korea and the United States. Both nations aim to finalize a "package" agreement on trade and related issues by July 8, when the 90-day suspension of U.S. tariffs is set to expire.
Last week, the central bank significantly lowered its forecast for South Korea's economic growth this year to 0.8 percent from an earlier prediction of 1.5 percent, citing declining consumption and slowing export growth amid uncertainties caused by Washington's tariff actions.
The BOK also updated the data on the country's gross national income (GNI) for 2024. The per capita GNI increased by 1.5 percent from the previous year to $36,745, while in Korean won, the GNI rose by 6.1 percent to a record high of 50.12 million won. Earlier estimates had predicted a 1.2 percent increase to $36,624.
"Based on data from April and May, there were signs that domestic demand was gradually improving," BOK official Kang Chang-goo stated at a press briefing. He added that goods consumption, retail production, and facility investment showed improvement compared to the first quarter, though the construction sector and food and accommodation industries remained weak.
"Exports increased on average through May this year, but the impact of U.S. tariff measures is expected to become more pronounced," Kang noted.