South Korea's economy plunges into recession

Seoul

THE South Korean economy plunged into recession in the second quarter, in its worst decline in more than two decades as the Covid-19 pandemic battered exports and social distancing curbs paralysed factory output.

Asia's fourth-largest economy shrank by a seasonally adjusted 3.3 per cent in the June quarter from three months earlier, the Bank of Korea (BOK) said on Thursday. It is the sharpest contraction since the first quarter of 1998.

"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.

Gross domestic product fell 2.9 per cent in year-on-year terms, the biggest fall since the fourth quarter of 1998 and also worse than a 2 per cent decline seen in the poll.

Exports, which account for nearly 40 per cent of the economy, were the biggest drag on growth, dropping by 16.6 per cent on-quarter to mark the worst reading since 1963.

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Construction investment fell 1.3 per cent quarter on quarter, while capital investment declined 2.9 per cent. Output from manufacturing and service sector fell by 9 per cent and 1.1 per cent respectively.

One saving grace has been a 1.4 per cent gain in private consumption from three months earlier, thanks to government cash handouts that boosted spending on restaurants, clothes and leisure activities.

Finance Minister Hong Nam-ki said the economy is likely to rebound from the third quarter.

The government has rolled out about 277 trillion won (S$319.7 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 cars to petrochemical products.

Last week, the BOK's governor said a downward revision from its previous projection of a 0.2 per cent decline for 2020 was inevitable. REUTERS