Real growth,  QQQ, seasonally adjusted data

Inconsistent growth across segments points to continued volatility in the market

Though the Korean economy surpassed our expectations in Q1 2023, exceeding low expectations does not usually count for much. Q1’s results show that firms will continue to face difficulty navigating the market in the months ahead.

Customer segmentation remains key for maintaining profitability and achieving growth in 2023. Firms should double down on products and channels that continue to display resilience. B2C firms should prioritize returning tourists and high-income consumers, as demand among these segments will continue to grow. B2B firms should focus on capturing opportunities created by South Korean firms’ long-term investments into electric vehicles (EVs) and semiconductors. Catering to food processors and exporters of production machinery will also lead to short-term wins. Finally, firms should consider introducing new products into the market that cater to price-sensitive customers or those that have a high dependence on revolving lines of credit.


The Korean economy saw flat growth through Q1 2023, with no major contraction or expansion over the quarter. GDP growth slowed by a nominal amount of 0.08% on a quarterly basis. There was a marked decline in overall investment levels due to higher interest rates and growing inventory levels among producers. However, exports grew by 2.9% on a QOQ basis despite weakness in global production activity and semiconductor demand. Improvements in commodity, food, and production machinery exports largely accounted for this growth. Additionally, consumer spending expanded by 0.5% QOQ, as steady declines in inflation supported demand for services and non-durable goods.

Our View

South Korea’s Q1 performance was slightly above our expectation of  -0.35% GDP growth relative to Q4 2022. Yet, despite the improved performance seen in Q1, our outlook for the remainder of 2023 has not improved drastically. The resilience in exports and household spending are indeed positive signs and should be reflected in upward demand forecasts among businesses, but there are limitations on how much they can contribute to growth in 2023.

Household spending will be constrained by high domestic interest rates. Korean households hold high amounts of debt relative to global standards, and elevated interest rates will weigh on households’ ability to consistently increase spending. Middle- to lower-income consumers will also be exposed to repayment pressures and the risk of defaulting on their debts. Moreover, the country’s reliance on semiconductor and electronics exports will hinder growth in 2023, as global demand for these goods remains weak. Korean manufacturers, especially semiconductor producers, have seen their inventory levels skyrocket as a result. These inventory buffers will ensure that rebounds in production and investment levels will lag a rebound in demand.

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