South Korea’s economy bigger than thought, easing debt burdens

SOUTH Korea’s economy has grown 4.9 per cent more than previously thought every year on average since 2000, a revision that lowers the share of national debt and raises the scope for more policy action by monetary and fiscal authorities.

The nation’s economic size amounted to 2,401 trillion won (S$2.4 trillion) on a nominal basis as at last year, compared with a previous estimate of 2,236 trillion won, according to the Bank of Korea (BOK) on Wednesday (Jun 5). Meanwhile, the BOK said real gross domestic product expanded 1.3 per cent in the first quarter from the previous three months, a result that matched its earlier calculation in preliminary data.

The upward revision to the size of the economy means lower debt-to-GDP ratios in the nation, providing new yardsticks for policymakers if and when they redraw their economic blueprints. Based on the new number, the ratio of household debt to GDP falls to 93.7 per cent from 100.6 per cent, while for government debt it falls to 51.4 per cent from 55.3 per cent, according to Hyosung Kwon of Bloomberg Economics.

The BOK’s revisions reflect new concepts, methodologies and data sources while changing the base year to 2020 from 2015. The portion of manufacturing in the economy grew while that of services and construction shrank in the latest estimates, the BOK said.

Derivatives contracts showed the won, one of the worst-performing Asian currencies this year, little changed following the release of the output data. The two-month non-deliverable forward was quoted up 0.1 per cent at 1369.43 per US dollar at 7.11 am in Hong Kong. Trading in the onshore currency market starts from 9 am.

On a year-on-year basis, South Korea’s GDP grew 3.3 per cent in the first quarter, slightly slower than the 3.4 per cent estimate previously announced by the BOK.

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The revision comes as inflation slowed to 2.7 per cent in May compared with last year, raising hopes among authorities that price growth will continue to track down towards the end of the year.

While the BOK held its benchmark interest rate at a restrictive 3.5 per cent last month, it also maintained its inflation prediction for the year, keeping alive speculation for an interest rate cut later in 2024. Korea’s central bank was ahead of many of its global peers in embarking on a tightening cycle after the pandemic, and some economists expect it to pivot to easing before the Federal Reserve does so.

Meanwhile, the BOK sharply raised its 2024 outlook for the economy after the first-quarter number surprised investors who had anticipated a 0.6 per cent expansion from the previous three-month period. The stronger-than-expected performance came even as central banks around the world keep interest rates elevated to target sticky inflation.

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BOK governor Rhee Chang-yong said last month that authorities may consider cutting the rate if they gain enough confidence that price pressure is poised to slow to the target of 2 per cent. BLOOMBERG