South Korea’s economy bigger than first thought

The nation’s economic size amounted to 2,401 trillion won on a nominal basis as of last year, compared with a previous estimate of 2,236 trillion won. — Bloomberg

SEOUL: South Korea’s economy has grown 4.9% 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 financial authorities.

The nation’s economic size amounted to 2,401 trillion won on a nominal basis as of last year, compared with a previous estimate of 2,236 trillion won, according to the Bank of Korea (BoK) yesterday.

Meanwhile, the BoK said real gross domestic product expanded 1.3% 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-gross domestic product (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% from 100.6%, while for government debt it falls to 51.4% from 55.3%, 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.

Hyosung Kwon, a Bloomberg economist, said: “With the revised GDP data supporting perceptions that the financial burden is lighter than previously believed, even the ruling party could call for financial expansion, not to mention the opposition parties.”

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

The revision comes as inflation slowed to 2.7% 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% last month, it also maintained its inflation prediction for the year, keeping alive speculation for an interest rate cut later in 2024.

South Korea’s central bank was ahead of many of its global peers in embarking on a tightening cycle after the Coronavirus 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% 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.

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%. — Bloomberg