'Semiconductors and Expansionary Fiscal Policy' Drive 0.6% Growth in South Korea's Economy in Q2; Per-Capita GNI Expected to Exceed $40,000

[Financial News] Real gross domestic product (GDP) grew 0.6% quarter on quarter in the second quarter, driven by record semiconductor export performance and the government's expansionary fiscal policy. The figure was unchanged from the preliminary estimate released in July. Nominal GDP, which indicates the size of the economy, increased 9.2% quarter on quarter, the highest level in 47 years. If this growth trend continues, South Korea is expected to achieve growth in the 3% range this year.
Real gross national income (GNI) reached a record 666.8 trillion won. It rose 3.1% from the previous quarter's 647 trillion won and 15.6% from the same period a year earlier. The year-on-year increase was the largest in 37 years and six months, or 150 quarters, since the fourth quarter of 1988, when it stood at 15.7%. As a result, per-capita GNI is expected to exceed $40,000 for the first time this year. South Korea's per-capita income has remained at $30,000 for 12 years since 2014.
On the 8th, the BOK released preliminary national income data for the second quarter.
Real GDP increased 0.6% quarter on quarter and 3.7% year on year. GDP rebounded sharply from -0.1% in the fourth quarter of last year to 1.8% in the first quarter of this year. Relatively strong growth continued in the second quarter.
Kim Hwayong, head of the BOK's National Income Division, said at a briefing, "Mathematically, achieving this year's projected growth rate of 3.3% is possible if the economy grows by an average of 0.2% to 0.3% in the second half of the year." At the end of August, the BOK sharply raised its forecast for South Korea's economic growth this year from 2.6% to 3.3%. If South Korea achieves growth in the 3% range, it will be the first time in five years since 2021.
Nominal GDP increased 9.2% from the previous quarter and 26.4% from a year earlier. This was the largest increase in 46 years and nine months, or 187 quarters, since the third quarter of 1979, when it rose 27.7%.
By industry, manufacturing grew 1.4% quarter on quarter, led by computers, electronics, and optical equipment. Services increased 1.0%, driven by wholesale and retail trade, accommodation and food services, finance and insurance, and information and communications.
Construction, however, continued to suffer from a downturn and declined 1.9% as civil engineering construction fell.
Consumption increased in the second quarter, partly due to the effects of implementing a supplementary budget worth 26 trillion won.
Private consumption rose 0.4% from the previous quarter as spending increased on both goods, including home appliances, and services such as food and accommodation.
Government consumption increased 0.1%, led by spending on health insurance benefits.
Facility investment rose 0.2% as investment in machinery, including semiconductor manufacturing equipment, increased. Investment in intellectual property products grew 3.4%, led by research and development and software.
Exports increased 1.3%, led by semiconductors, machinery, and equipment, while imports rose 0.7%, driven by automobiles, machinery, and equipment.
Construction investment, however, declined 0.1% as civil engineering construction decreased.
Growth in the second quarter was driven equally by domestic demand and net exports—exports minus imports—which each added 0.3 percentage points to the growth rate. Domestic demand contributed 0.3 percentage points to quarterly growth, with private consumption and investment in intellectual property products each contributing 0.2 percentage points.

Nominal GDP, including the effects of price increases, also rose 9.2% quarter on quarter. Compensation of employees increased 1.9%, led by manufacturing. Gross operating surplus grew 18.5%, driven by manufacturing, finance, and insurance.
Kim said, "The increase in gross operating surplus resulting from strong corporate earnings will appear as higher household income through performance bonuses and dividends. Government income from corporate taxes, earned-income taxes, and dividend-income taxes also increased, which will lead to higher domestic demand with a time lag."
The GDP deflator, which indicates the level of inflation through the difference between nominal and real GDP, rose 21.9% year on year. This was the highest level since the fourth quarter of 1980, when it rose 20.6%.
National gross income, which combines income from the productive activities of the nation, increased sharply.
Nominal GNI increased 8.8% quarter on quarter, rising alongside nominal GDP, which grew 9.2%. Nominal GNI growth for the first half of the year stood at 21.8%.
As a result, South Korea's per-capita gross national income (GNI) is expected to comfortably exceed $40,000 this year.
Kim said, "If there are no unexpected shocks in the second half of the year, and if the annual nominal GNI growth rate remains at its current level while the exchange rate stays stable, the likelihood that per-capita GNI in dollar terms will exceed $40,000 has become very high."
Real GNI, which represents the overall purchasing power of the population, increased 3.1% quarter on quarter. It rose 15.6% from a year earlier, reaching its highest level in 37 years and six months since the fourth quarter of 1988, when it rose 15.7%. The increase was driven by a sharp rise in the prices of exported products, particularly semiconductors, and was more than five times the economic growth rate of 0.6%.
Kim explained, "Improved terms of trade increased real trade gains from 38.7 trillion won to 58.5 trillion won, exceeding the real GDP growth rate of 0.6%."
The gross saving rate rose 3.9 percentage points from the previous quarter to 45.6%, the highest level since statistics were first published in 1970. This means that national income increased more than consumption, expanding the capacity for consumption.
[email protected] Jung Sang-kyun Reporter