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South Korea’s economy shrinks in Q4 for the first time in 2 1/2 years

SEOUL (Reuters) – South Korea’s economy contracted in the final quarter of 2022 for the first time in 2 1/2 years as a post-pandemic spending spree eased and global trade slumped, central bank estimates showed on Thursday.

Gross domestic product (GDP) shrank 0.4% qoq in the October-December period, the Bank of Korea estimated, after rising 0.3% in the July-September quarter. In a Reuters survey, economists had expected a decline of 0.3%.

The first GDP contraction since the second quarter of 2020 was topped by losses of 5.8% in exports and 0.4% in private consumption, while government spending rose sharply by 3.2%, according to central bank estimates.

Q4 2022 GDP was 1.4% higher than a year earlier, compared to a 3.1% annual increase in the third quarter and the 1.5% forecast in the survey.

The central bank estimated that the full-year value of the economy, Asia’s fourth-largest, was 2.6% higher in 2022 than in 2021, when it showed 4.1% growth. Average full-year GDP growth for 2017-2021 was 2.3% per year.

The central bank’s latest full-year GDP growth forecast for 2023 is 1.7%, but its warning this month that it could downgrade that outlook led investors to bet the January 13 rate hike marks the end of a tightening cycle had which started in August 2021.

South Koreans spent heavily on consumption after the pandemic controls were lifted by early 2022, but spending behavior has since returned to more normal levels. This came just as demand for South Korea’s exports fell as foreign economies weakened and faced interest rate hikes to curb inflation.

(Reporting by Jihoon Lee and Choonsik Yoo; Editing by Bradley Perrett)

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