South Korea’s GDP growth climbs to 11-year high, but recovery uneven

South Korea’s economy expanded at the fastest pace in 11 years in 2021 helped by a jump in exports and construction activity, tempering declines in capital investment and a slow recovery in the coronavirus-hit service sectors.

Record exports drove the rebound but swathes of the economy have fallen behind. Jobs are still vanishing across manufacturing and service sectors, a reminder that liberal President Moon Jae-in’s promises to boost employment have not materialised.

Hours after Bank of Korea data showed the economy expanded 4.0% last year, hundreds of small business owners plan to gather near the National Assembly in Seoul to shave their heads in protest against social distancing rules that have hammered retail and service sector sales.

Sentiment remains pessimistic as South Koreans head to the polls for the 2022 Presidential election slated for March 9.

The main candidates from the ruling and opposition parties have seized on the discontent, making an equitable society a centerpiece of their policy visions.

The BOK expects GDP to grow 3.0% this year as Asia’s fourth-largest economy benefits from strength in semiconductor exports and increased public spending, though record domestic Covid-19 cases this week are a threat to consumption.

“Global demand for our chips is resilient and strong exports will keep (South Korea’s) growth momentum solid,” said Hwang Sang-pil, head of BOK’s Economics Statistics department.

“People are getting used to social distancing curbs. Activity was slower in December but the hit is smaller than before.”

The economy expanded a seasonally adjusted 1.1% in the October-December period from three months earlier, beating the 0.9% expansion tipped in a Reuters poll and up from a 0.3% rise in the third quarter.

From a year earlier, the economy expanded 4.1% in the fourth quarter, also beating a median forecast of 3.7% in the poll.

The BOK on Jan 14 raised its benchmark interest rate to pre-pandemic levels and signalled it may tighten further as growth and inflationary pressures remain strong.

South Korea’s economy has had a sharp albeit uneven bounce from the coronavirus slump in 2020, when it contracted 0.9%, with exports expanding at their fastest annual pace in 11 years last year while the consumption recovery has been patchy due to social distancing curbs.

A recent Reuters poll of 20 economists forecast the economy will grow 2.9% this year, below the 3.0% projected by the BOK.

Tuesday’s data showed exports were the main driver of growth in the fourth quarter, jumping 4.3% on-quarter.

Growth was also helped by private consumption and construction investment, which expanded 1.7% and 2.9%, respectively.

The service sector grew 1.3% in the fourth quarter, stronger than the third quarter but slower than the second.

Capital investment declined 0.6% on-quarter, following a 2.4% drop in the preceding three months.