The Japanese economy, which has long suffered from decades of stagnation, is showing signs of recovery. Its gross domestic product (GDP) growth rate has turned positive for the first time in three quarters, surpassing that of Korea.
If this trend continues, Japan will surpass Korea in terms of real economic growth rate this year, for the first time in 25 years since 1998 during the Asian financial crisis.
Japan’s Cabinet Office announced on Wednesday that the country’s GDP increased 0.4 percent year-on-year during the first quarter of this year. Its annual growth rate, which the International Monetary Fund (IMF) initially projected at 1.3 percent, is now expected to reach 1.6 percent based on its recent performance.
This stands in stark contrast to Korea, which is struggling to achieve a growth rate of 1.5 percent this year. Global credit ratings agency S&P cut the 2023 economic growth estimate for Korea to 1.1 percent from a previous outlook of 1.3 percent, while the IMF reduced its economic outlook to 1.5 percent from 1.7 percent.
Market watchers attributed the contrasting performance to the differing economic structures of the two countries. Japan’s growth momentum has been driven by a surge in domestic demand, which has had a significant impact on its economy following the end of the pandemic.
“Japan’s largest trading partner is China, just like the case of Korea. While China’s reopening had a lukewarm impact, the bigger significance of domestic demand played a crucial role in bolstering Japanese markets compared to Korea,” said Ryu Jin-lee, a researcher at Hi Investment & Securities.
Ryu explained that Japan has a low degree of external dependence, with domestic private consumption accounting for 54 percent of its GDP.
Unlike Japan, Korea relies heavily on external trade for its economy. Korea is currently struggling economically due to persistent weak demand in China for its key export products such as semiconductors and petrochemicals. Korea’s exports to China declined by 26.5 percent year-on-year, marking the largest decrease among exporting countries.
Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, noted that China’s reopening is focused primarily on consumption rather than manufacturing at this moment.
The stagnation in the number of foreign visitors to Korea, coupled with a notable surge in the number of Korean travelers heading abroad this year, is another factor that poses challenges to Korea’s growth.
Source: Korea times
