SEOUL (REUTERS) – The coronavirus pandemic pushed South Korea’s economy into its biggest contraction since 2008 in the first quarter, as self-isolation hit consumption and kept businesses closed and global trade slumped.
Gross domestic product decreased by a seasonally adjusted 1.4 per cent in the first quarter from three months earlier, the central bank said on Thursday (April 23), a slightly smaller decline than the 1.5 per cent contraction seen in a Reuters survey and reversing 1.3 per cent growth in the fourth quarter.
Highlighting the challenges in domestic demand, private consumption shrank 6.4 per cent on-quarter to mark the worst reading since a 13.8 per cent contraction in the first quarter of 1998, during the Asia Financial Crisis.
“The economy is likely to contract for at least another quarter as hard times will continue for exports,” Moon Jung-hui, an economist at KB Bank said.
“Consumption will improve especially on increased fiscal expenditure, but exports of key items including petrochemical products will suffer.”
Since late January, the economy has been paralysed by self-isolation containment across the country, which kept businesses and shops closed and workers stuck at home.
The government on Sunday began relaxing some social distancing rules, but Asia’s fourth-largest economy is spiraling toward its first technical recession since 2003, defined as two straight quarters of decline, as the pandemic stymies an export recovery.
Thursday’s data showed exports declined 2 per cent from the fourth quarter, while construction investment and capital investment rose 1.3 per cent and 0.2 per cent, respectively.
Exports for the first 20 days of April plunged nearly 27 per cent on-year, and shipments are set to shrink further over the coming months as top trading partners such as Europe and the United States remain in lockdown.
From a year earlier, the economy grew 1.3 per cent in the first quarter, slowing from 2.3 per cent growth in the fourth quarter and compared with 0.6 per cent seen in the poll.
Investors worry a slump in the Chinese economy could severely dent global growth and demand for key South Korean exports items including memory chips and petrochemical products.
The Chinese economy – which has generated nearly a third of global growth in recent years – suffered its first contraction since 1992.
The pressure on South Korea’s economy is expected to persist over coming months, with a Reuters poll predicting gross domestic product to shrink 0.1 per cent this year. The International Monetary Fund (IMF) sees an even bigger 1.2 per cent contraction.
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