Bank of Korea releases preliminary national income data
'$40,000 milestone could come sooner than 2028'
Annual growth rate faces upward pressure; 3% now in view
Nominal GDP surges 10.5% quarter on quarter
'Fiscal burden to ease, domestic demand to benefit'
By Kim Byeo-ri, The Herald Business
South Korea's real gross national income posted its largest quarterly gain on record in the first quarter, raising hopes that per capita national income could cross the $40,000 mark for the first time. The preliminary first-quarter real GDP growth figure also came in 0.1 percentage point above the flash estimate, increasing the likelihood of a further upward revision to the annual growth rate.
The Bank of Korea said Tuesday in its preliminary national income report that the record-setting real GNI growth and the upside GDP surprise reflected easing terms of trade led by semiconductors, along with stronger-than-expected private consumption and facility investment.
Attention is now turning to whether per capita GNI will surpass $40,000 for the first time this year, given the record first-quarter real GNI performance. The Bank of Korea said last year's per capita GNI stood at $36,963, meaning the country has failed to clear the $40,000 threshold for 12 consecutive years.
Kim Hwa-yong, head of the Bank of Korea's national income division, told a briefing Tuesday morning that if the current strong growth momentum continues, per capita income is expected to approach the $40,000 level this year. "In March we said 2028 was the expected target year — it is now clear that the milestone could be reached sooner than that," he said. He added that whether the $40,000 mark is actually achieved will depend on future corporate earnings and the direction of the won-dollar exchange rate, noting that a weaker won reduces the dollar value of per capita GNI.
The preliminary first-quarter real GDP figure rose a further 0.1 percentage point above the flash estimate, which had already come in at roughly double the forecast. Kim said private consumption was revised up on stronger securities trading, services, passenger vehicles and durable goods such as home appliances, while facility investment was raised because display and semiconductor investment advanced faster than expected.
Breaking down the preliminary first-quarter real GDP by economic activity, manufacturing grew 3.9 percent from the previous quarter, led by computers, electronics and optical equipment. Construction rose 2.2 percent on gains in both building and civil engineering work, while services expanded 0.6 percent, driven by wholesale and retail trade, accommodation and food services, and finance and insurance.
On the expenditure side, private consumption rose 0.6 percent from the previous quarter as spending on both goods and services increased. Exports climbed 5.9 percent, led by IT products including semiconductors, while imports grew 3.9 percent, driven by machinery, equipment and automobiles. Construction investment and facility investment rose 1.4 percent and 6.6 percent, respectively. Government consumption, however, fell 0.4 percent as national health insurance benefit payments declined.
Upward pressure on the annual economic growth rate has also intensified. The Bank of Korea set its annual growth forecast at 2.6 percent in its revised economic outlook last month, but the possibility of achieving 3 percent growth is now being discussed both inside and outside the central bank.
Kim said the 0.1 percentage point upward revision to first-quarter real GDP feeds directly into a 0.1 percentage point increase in the annual growth rate, adding that the bank will update its annual growth forecast in August based on conditions at that time.
Nominal GDP surged 10.5 percent from the previous quarter and 17.1 percent from a year earlier. The quarter-on-quarter gain was the largest since the first quarter of 1976, and the year-on-year gain was the largest since the third quarter of 1995. Nominal GDP measures output at current prices, without adjusting for inflation. Compensation of employees rose 4 percent from the previous quarter on higher manufacturing wages, while gross operating surplus jumped 17 percent quarter on quarter, led by manufacturing and finance and insurance.
Nominal GDP is closely watched in financial circles because it affects key ratios such as the national debt-to-GDP ratio and the household debt-to-GDP ratio — a higher nominal GDP mechanically lowers both. Markets are now projecting that South Korea's annual nominal GDP growth rate could reach double digits this year for the first time in 24 years.
Semiconductor-driven tax revenue growth is also easing the government's fiscal burden, and some analysts expect the government to pursue a more active fiscal policy going forward.
Kim said the expansion in nominal GDP should be distinguished from the cost-push inflation of the past because it is not being driven by domestic price increases. "Nominal GDP growth driven by improved corporate profitability will significantly ease the government's fiscal burden while also having a positive effect on stimulating domestic demand," he said.
He went on to say that higher corporate operating profit translates into greater corporate tax revenue, which can be used not only to stabilize public finances but also to fund structural reforms — such as nurturing future industries — that raise potential growth, and to boost domestic demand through expanded research and development and facility investment. "The likelihood that ratios such as household debt and government debt will fall significantly has also grown considerably," he added.
kimstar@heraldcorp.com
