SEOUL, Jan. 26 (Al Jazeera) – South Korea’s economy contracted in the final quarter of 2022 for the first time in two-and-a-half years, as a post-pandemic spending spree faded and global trade tumbled, according to central bank estimates.

Gross domestic product (GDP) shrank 0.4 percent in the October-December period from the previous quarter, the Bank of Korea said on Thursday, after a 0.3 percent gain in the July-September quarter. Economists in a Reuters news agency poll had expected a 0.3 percent fall.

Leading the first GDP decline since the second quarter of 2020 were losses of 5.8 percent in exports and 0.4 percent in private consumption, whereas government spending posted a sharp 3.2 percent increase, the central bank estimates showed.

Fourth-quarter 2022 GDP was 1.4 percent higher than a year earlier, compared with a 3.1 percent annual gain seen in the third quarter and the 1.5 percent forecast in the poll.

The central bank estimated that in 2022, the full-year value of Asia’s fourth-largest economy had been 2.6 percent bigger than in 2021, when it showed growth of 4.1 percent. The average growth in full-year GDP for 2017 to 2021 was 2.3 percent a year.

The central bank’s latest growth forecast for the 2023 full-year GDP is 1.7 percent, but its warning this month that it might downgrade that outlook prompted investors to bet that the bank’s January 13 interest rate rise had marked the end of a tightening cycle that began in August 2021.

South Koreans spent heavily on consumption after pandemic controls were removed by early 2022, but spending behaviour has since returned to more normal levels. This has occurred just as demand for South Korean exports has declined with the weakening of foreign economies subject to interest rate rises aimed at containing inflation.