South Korea’s economic contraction will worsen in the current quarter, the central bank forecast yesterday, as the coronavirus outbreak hits consumer demand and economic activity even harder.
The Bank of Korea predicted the world’s 12th-biggest economy will shrink at least 2 percent in the April-June period over the previous three months.
It already declined 1.3 percent quarter-on-quarter in the first three months, it said — a slight improvement from its first announcement in April of a 1.4 percent contraction, but still the biggest drop in the nation’s GDP since the 2008 global financial crisis.
Photo: EPA-EFE
South Korea endured one of the worst early outbreaks of the coronavirus outside mainland China, and while it never imposed a compulsory lockdown, strict social distancing was widely observed from March until it started loosening restrictions last month.
Private consumption decreased 6.5 percent in January-March from the previous quarter “as expenditures on goods and services both decreased,” the bank said.
The country appears to have brought its epidemic under control thanks to an extensive “trace, test and treat” program and life is beginning to return to normal.
However, the bank’s forecast last week that the economy would shrink 0.2 percent this year, a dramatic downgrade from its February forecast of 2.1 percent growth, and cut interest rates to a record low.
The South Korean Ministry of Trade, Industry and Energy on Monday reported that exports posted another double-digit decline in last month in a sign of continuing pain from the pandemic, with the automobile sector among the worst hit.
Overseas shipments fell 24 percent from a year earlier, slightly less than economists forecast. Shipments to China held up with just a 2.8 percent decline, while those to the US and the EU plummeted, the ministry said, adding that vehicle exports dropped more than half, while the value of auto parts shipments slipped by two-thirds.
Chip exports, South Korea’s biggest source of trade income, rose 7.1 percent, the ministry said.
The IMF has estimated the world economy will contract 3 percent this year, saying it is expected to “experience its worst recession since the Great Depression” over the pandemic, with South Korea’s economy shrinking 1.2 percent.
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