South Korea in the second quarter plunged into recession in its worst economic decline in more than two decades as the COVID-19 pandemic battered exports and social distancing curbs paralyzed factories.
Asia’s fourth-largest economy shrank by a seasonally adjusted 3.3 percent in last month’s quarter from three months earlier, the Bank of Korea said yesterday.
That is the sharpest contraction since the first quarter of 1998 and steeper than a 2.3 percent fall shown in a Reuters poll.
South Korea joins Japan, Thailand and Singapore in technical recession, defined as two straight quarters of decline, as the pandemic slams Asia’s trade-reliant economies.
However, analysts and policymakers are looking at the prospect of a recovery that would be faster than those of its regional peers.
“It’s possible for us to see China-style rebound in the third quarter as the pandemic slows and activity in overseas production, schools and hospitals resume,” South Korean Minister of Finance Hong Nam-ki said after the data was released, referring to China’s return to growth in the second quarter after a deep slump earlier in the year.
South Korea’s GDP fell 2.9 percent year-on-year, the biggest fall since the fourth quarter of 1998 and worse than a 2 percent decline shown in the poll.
Exports, which account for nearly 40 percent of the economy, were the biggest drag on growth, dropping by 16.6 percent on-quarter to mark the worst reading since 1963.
South Korea’s POSCO, the world’s fifth-biggest steelmaker, reported an 84.3 percent drop in operating profit in the second quarter as global demand for steel plummeted.
“While consumer spending should gradually recover, the threat from the virus is unlikely to fade entirely and some social distancing will probably have to remain in place,” Capital Economics Asia economist Alex Holmes said.
“Meanwhile, global demand is only likely to recover slowly, which will weigh on the export recovery,” Holmes added.
South Korea has reported almost 14,000 infections and about 300 deaths since the start of the pandemic, relatively low numbers by global standards, although the economic disruptions have been significant.
Construction investment fell 1.3 percent quarter-on-quarter, while capital investment declined 2.9 percent.
Output from manufacturing and the service sector fell by 9 percent and 1.1 percent respectively.
One saving grace has been a 1.4 percent gain in private consumption from three months earlier, thanks to government cash handouts that boosted spending on restaurants, clothes and leisure activities.
The government has rolled out about 277 trillion won (US$232 billion) worth of stimulus to fight the economic fallout from the pandemic so far.
However, policymakers have little control over the global demand for the country’s exports, which includes everything from memory chips to vehicles to petrochemical products.
For the whole of this year, analysts have said the economy could decline by a median 0.4 percent, which would be the first full-year contraction since 1998. The IMF estimates an even bigger 2.1 percent contraction.
Last week, the Bank of Korea’s governor said a downward revision from its previous projection of a 0.2 percent decline for this year was inevitable.
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