Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
S. Korean economy suffers worst contraction since 1998 crisis
By Lee Min-hyung
By Lee Min-hyung
The economy shrank 3.3 percent in the second quarter of the year, its worst performance since the Asian financial crisis in 1998, as exports bore the brunt of the COVID-19 pandemic, the Bank of Korea (BOK) said Thursday.
The global spread of the novel coronavirus led to strong downward pressure on the export-driven economy between April and June. Private consumption achieved a slight rebound, but it was insufficient to offset the poor exports, the central bank said. Exports make up roughly half of the nation's GDP.
The decline in shipments stemmed mostly from a sales plunge in the manufacturing sectors ― such as automobiles and electronic equipment. Second-quarter exports dropped by 16.6 percent from the previous year, and the lowest since the 1970s.
“The sharper-than-expected contraction was due to poor performances in exports and private consumption,” Park Yang-soo, chief of the BOK's economic statistics bureau, said in an online press conference.
With the country's major export destination countries imposing entry bans amid fears of the spreading coronavirus, overseas demand for major export items ― such as vehicles and smartphones ― declined sharply, Park said.
Earlier, the BOK forecast the economy to shrink around 2 percent in the second quarter after reporting a contraction of 1.3 percent in the previous quarter.
Trap of recession
The ongoing downturn is raising concerns that the economy has fallen into a recession often defined as two consecutive quarters of a contraction in GDP growth.
But the central bank and the Ministry of Economy and Finance remained optimistic for a potential economic rebound in the latter half of 2020.
“The Chinese economy has bounced back sharply after Beijing controlled the pace of the virus spread there, and Korea can also follow in similar footsteps,” Park said.
Finance Minister Hong Nam-ki also said the economy appeared to have bottomed out during the April-June period, expressing hope for a rapid rebound through the end of the year.
“The economy can achieve a considerable rebound in the third quarter if the virus spread continues to show signs of subsiding,” Hong said during an emergency meeting with ranking financial officials.
Local economists, however, expect the virus-induced external uncertainty to remain in place this year.
“The economy will bounce back to some extent in the second half of the year, and GDP growth will take a turn for the better,” Yonsei University economist Sung Tae-yoon said.
“But this will be a statistical base effect, compared to the first half of the year. It is too early for us to say that the real economy will achieve a successful rebound by the end of the year.”
Private consumption is expected to get on a stable track for recovery in the coming quarters unless there are second or third waves of COVID-19 infections here, according to Sung.
“But the problem is that external uncertainty will not improve rapidly,” he said.
“Even if the Chinese economy is showing strong signs of recovery, China is not the only trading partner for Korea.” China accounts for a quarter of Korea's exports.
According to the professor, for a full-fledged economic rebound here, global supply chains must be normalized, and economies in other countries need to be back on track for recovery.