The impact of the coronavirus pandemic on consumer demand and exports in South Korea forced its economy into the most severe contraction since the 2008 financial crisis. Analysts fear that the worst for the economy is yet to come.
According to an estimate released Thursday by the Bank of Korea, in the January-to-March quarter, there was a contraction of 1.4 per cent compared to the fourth quarter of 2019 in the fourth-largest economy of Asia. While the contraction was slightly better than what was expected by analysts polled by Refinitiv, yet it was the worst for the economy in more than a decade.
During the quarter however there was still a growth of 1.3 per cent in the economy year on year. But the growth rate was much slower than the 2.3 per cent year in year growth that was experienced during the fourth quarter of last year.
While there was a 2 per cent fall in exports, there was a decline of 6.4 per cent in consumer spending during the quarter compared to the previous quarter. The coornavirus had hit South Korea early and there were the highest number of positive case in the country outside of China at one point of time.
However there had been a dramatic slowdown in the rate of daily infections since early March. According to Johns Hopkins University, till date, South Korea has had about 10,700 recorded infections and 238 deaths.
In terms of providing free and easy testing options for the population, the South Korean government has been among the most ambitious in the world. The early testing effort initiated by South Korea has been identified as the main reason for the decline in new coronavirus cases in the country by experts. South Korea managed to quickly do what is now commonly referred to as “flattening the curve.”
But according to Alex Holmes, Asia economist for Capital Economics, the export dependent South Korean economy will still be hit hard by the pandemic because the rest of the world is still fighting it out and economic activities are almost at a standstill.
“Widespread lockdowns across the world are weighing heavily on external demand, which will hit Korea’s export-focused economy hard,” he wrote in a note on Thursday.
Exports plunged nearly 27% from a year ago, showed trade data from the first 20 days of April.
This “give[s] a taste of what is to come,” Holmes said. Meanwhile, he said that “domestic demand is unlikely to recover much this quarter as people continue to practice social distancing.”
He said that the mounting uncertainty is also likely to result in a fall in even general investment. Investment ticked up slightly in the first quarter.
The chances of growth in the short term will be a challenge for the country. there will be a contraction of about 6 per cent in the Korean economy in the second quarter compared to the prior quarter, according to a forecast by Capital Economics, while there is expected ot be a shrinking of 3 per cent for the whole year.
(Adapted from CNN.com)