South Korea's economy grew by 4 percent last year, the strongest in eleven years.

At that time, the gross domestic product had increased by 6.8 percent in the recovery after the global financial crisis, adjusted for inflation.

Even now, the strong growth reflects the recovery after a crisis.

In the first year of the pandemic, 2020, the economy of the export-dependent country shrank by 0.9 percent when global trade collapsed in the first few months of the Covid scare.

Patrick Welter

Correspondent for business and politics in Japan based in Tokyo.

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With this growth pattern, South Korea experienced a weaker slump in 2020 and a stronger economic recovery in 2021 compared to many western countries such as Germany.

South Korea is the tenth largest economy in the world in terms of gross domestic product, after Canada and ahead of Russia.

Private consumption strong

Last year's recovery was based on a 3.6 percent increase in private consumption, but also on a strong increase in exports of 9.7 percent.

South Korea benefited from strong demand for semiconductors, the country's most important export product.

In the first year of the pandemic, private consumption and exports shrank.

According to the South Korean central bank, the continued strong demand for computer chips indicates that the country's economic recovery will continue this year. Major companies such as Samsung Electronics have announced major investments, so aggregate fixed asset investment could grow robustly as in the previous two pandemic years. Overall, however, a weakened growth rate is expected this year. The Bank of Korea expected gross domestic product to grow by 3 percent in November. The expectations of commercial banks and securities firms fluctuate around this value.

The most important risk factor is currently the domestic economy.

Despite strict quarantine regulations at the external borders, the omicron wave has swept the country.

With more than 8,000 reported new Covid infections, South Korea experienced a new record on Tuesday.

The government is tightening the anti-corona regulations.

The pandemic situation is thus becoming a renewed risk for private consumption.

On the positive side, more than 50 percent of the population have already received a booster vaccination against the Covid infection.

Observers like Alex Holmes from Capital Economics therefore do not expect any lasting impairment of the propensity to consume.

Rising government spending

To ward off the economic consequences of the omicron wave, the government under President Moon Jae-in passed the first supplementary budget of the year last week with a volume of 14 trillion won (10 billion euros) or around 0.8 percent of gross domestic product.

In the last few months of his term, Moon is thus sticking to the course of increasing government spending.

According to the Bank of Korea, government consumption has increased by an annual average of 5.6 percent over the past four years.

At the beginning of March, the South Koreans will elect a new president.

Conservative candidate Yoon Suk-yeol is currently leading in the polls ahead of Moon's party colleague Lee Jae-myung.

To counteract the risk of inflation and capital markets, the central bank raised the key interest rate from 1 to 1.25 percent this month and signaled that at least one further interest rate hike was to be expected this year.