South Korea Falls Into Recession With Worst Contraction in Decades

South Korea‘s economy slid into a recession with exports plummeting in the second quarter as the coronavirus pandemic hurt profits in some of the nation’s largest industries from automobiles to refineries.

While the headline reading matches the decline recorded in 2008, the BOK said in a separate statement that when counting to two decimal places, the contraction was the worst since the 1998 Asian financial crisis. This is the countrys first technical recession since 2003.

Reliant heavily on trade, South Korea took a hit as global commerce collapsed during the pandemic, with exports falling by more than 20% in April and May. Finance Minister Hong Nam-ki said Thursday that last quarter was likely the bottom of the downturn, and said the economy can rebound as the export slump eases and consumption gathers momentum.

“Korea‘s going through the largest period of contraction in its history,” said Kim Young-ick, a professor of economics at Seoul’s Sogang University. “The earliest time we can expect the economy to be fully back on track is probably the bottom half of next year.”

Some of South Korea‘s industries have managed to benefit from the pandemic, with SK Hynix Inc., the nation’s second-largest chipmaker, reporting a surge in profit on Thursday. More traditional shipments such as cars and oil products have taken a hit.

Accelerated Downturn

South Koreas economy probably peaked in the fall of 2017 and has since been losing momentum, and when the pandemic hit, the pace of downturn accelerated, BOK official Park Yang-su said Thursday at a briefing.

The BOK has slashed its interest rate to a record low of 0.5% since the coronavirus hit, supporting government efforts to shore up the economy. Governor Lee Ju-yeol said last week that the economy would probably shrink by more than the -0.2% forecast in May.

Watch: Angela Hsieh, regional economist at Barclays, discusses the prospects for South Koreas economy, which slid into a recession in the second quarter.

(Source: Bloomberg)

GDP export volumes plunged 17% from the previous quarter while imports fell 7.4%. Facilities investment fell 2.9% as companies cut spending on transportation equipment. Private and government spending both increased from the January-March period.

“We still expect exports to recover but it will be a bumpy ride,” Angela Hsieh, an economist for Barclays Bank PLC., told Bloomberg TV. Hsieh said last quarter was likely the “trough”, adding policy makers will prefer to look through the weakness and focus on reviving growth momentum in the second half.

What Bloombergs Economist Says

“Looking ahead, we expect the economy to return to growth in 3Q as global lockdowns are eased and fiscal and monetary stimulus work its way through the economy. Even so, the recovery will likely be gradual and uneven, as ongoing outbreaks overseas and still-soft activity at home remain significant challenges..”

-- Justin Jimenez, economist