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A person walks through the candy aisle at a supermarket in South Korea amid rising prices for confectionaries due to a steep jump in the price of cocoa. (Yonhap)

Government figures show that the Korean economy grew by more than expected in the first quarter of the year. Semiconductors drove a recovery in exports, and sluggish domestic demand also seems to be improving in private consumption and construction investment, among other areas. But it’s unclear whether this will lead to the kind of economic recovery that will make a difference for ordinary people.

According to preliminary figures released by the Bank of Korea on Thursday, Korea’s gross domestic product (GDP) grew by 1.3% quarter over quarter, ending an eight-quarter run of less than 1% growth. That was the highest growth since the fourth quarter of 2021 (1.4%), and much higher than projected by the market (0.6%).

Averaged over the year, that would suggest robust growth of 5%.

The quarterly growth rate is an indicator of economic trends. After a slump in the semiconductor sector led to negative growth (-0.3%) in the fourth quarter of 2022, Korea rebounded in the first quarter of 2023 (0.3%), but the recovery has remained weak with the economy only growing by 0.6% for each of the three subsequent quarters.

When the first-quarter growth rate is broken down by sectors, exports (0.9%) continued to improve while domestic demand (0.7%), which includes consumption and investment, also showed signs of recovery.

Korea’s Ministry of Economy and Finance took the unusual step of releasing an explanatory statement on Thursday, noting that “exports and domestic demand achieved balance, which is welcome in terms of growth sustainability.”

But as the ministry itself acknowledged, it’s uncertain whether domestic demand will continue to rebound. First-quarter performance was strongly affected by the base effect from the fourth quarter of last year, and growth remains heavily dependent upon semiconductors and other export products.

That becomes more apparent when we look at year-over-year figures. Korea’s first-quarter growth compared to the same quarter last year was 3.4%, with imports (7.1%) accounting for 3.9 points of that growth.  The increase in exports was obviously driven by the semiconductor sector, which had a major impact on that recovery.

In comparison, private consumption only increased by 1.1%, and domestic demand actually had a negative impact on growth (-0.4 points). Furthermore, we may want to remove our rose-tinted glasses on the semiconductor sector, considering that Netherlands firm ASML, which has a monopoly on the supply of high-tech chipmaking equipment, saw sales fall by 27% last quarter.

On the ground, the actual economic conditions right now are even worse than deskbound commentators may be aware.

Back pay, which already hit a record high last year, has soared by a full 40% this year, and the loan delinquency rate in the banking sector has reached its highest point in four years and nine months.

That’s why President Yoon Suk-yeol and Democratic Party leader Lee Jae-myung need to quickly sit down and hammer out ways to stimulate domestic demand and restore people’s livelihood.

Please direct questions or comments to [english@hani.co.kr]