South Korea, Asia’s fourth-largest economy, plunged into recession last quarter, with GDP hitting its lowest quarterly growth rate since 1998.
Data released by the Bank of Korea (BOK) Thursday showed GDP contracted 3.3% compared to the first quarter—marking the second straight decline in quarterly growth. GDP dropped 1.4% in the first quarter, meaning South Korea is now in its first technical recession since 2003.
“When we offered our growth projection in May, we had expected the COVID-19 pandemic to begin slowing down in the second half of the year, but now we are in the second week of July, and the spread of the disease is rather accelerating,” BOK Gov. Lee Ju-yeol told a press briefing last Thursday. The BOK had earlier predicted a year-on-year contraction of 2% in the second quarter, but the actual figure turned out to be 2.9%.
Unlike many other countries battling the pandemic, South Korea never issued widespread shutdowns to manage the outbreak. The government relied on mass testing, contract tracing, and quarantine to control the spread of the virus, instead, making its fall into recession all the more remarkable.
Private consumption did increase 1.4% in the second quarter, but it wasn’t enough to counterbalance the massive decline in exports. In ordinary times, exports account for roughly 40% of South Korea’s economic growth. In the second quarter, exports crashed 16.6%—the worst quarterly reading since 1963.
The government has so far deployed $231 billion worth of stimulus to combat the pandemic, but the majority of South Korea’s exports go to China and the U.S. The latter is still grappling with the pandemic while China cut imports 3.3% in the first half of the year.
By comparison, exports were actually China’s main bright spot for the second quarter, increasing 0.3% quarter-on-quarter. That’s not much on paper but far higher than the roughly -25% growth analysts had predicted.
China was able to pivot to manufacturing medical equipment to answer the fall in demand for other exports. South Korea, which primarily exports semiconductors and automobiles, hasn’t been so nimble. Economists and government officials expect South Korea’s economy to resume positive growth in the current quarter, however.
“It’s possible for us to see China-style rebound in the third quarter as the pandemic slows and activity in overseas production, schools and hospitals resume,” Finance Minister Hong Nam-ki said Thursday.
Nevertheless, South Korea’s economy will likely decline for the full year. The International Monetary Fund predicts a 2.1% contraction for 2020.