SEOUL – South Korea went into recession for the first time in 17 years as exports plunged due to the coronavirus pandemic.
The Bank of Korea announced on Thursday that the country’s gross domestic product fell 3.3% in the April-June period from the previous quarter, when it contacted 1.3%. It is the first time that the economy has contracted for two consecutive quarters since 2003, and the quarterly decline is the steepest since 1998.
Exports fell 16.6%, the steepest decline since 1963, and imports fell 7.4%. Private consumption increased 1.4% due to higher spending on durable goods such as automobiles and household appliances.
“The Korean economy has been on the downside since October 2017, and the coronavirus shock accelerated the speed of the economic downturn,” BOK director Park Yang-soo said at a press conference after the publication of the data.
Finance Minister Hong Nam-ki said the unprecedented shutdown of the world economy halted the overseas production lines of Korean companies in Vietnam and India, further affecting exports.
The recession comes as President Moon Jae-in plans to raise property and sales taxes to control high home prices, especially in Seoul. Such a policy gives the BOK little room to further facilitate the policy, since lower interest rates risk providing too much liquidity in the real estate market.
BOK Governor Lee Ju-yeol said last week that it is important to let plenty of liquidity flow into the productive sectors. “The most important thing is that we have many productive places to attract investment,” Lee said at a press conference.
Lee said the country’s GDP could contract further this year based on the central bank’s forecast of growth of minus 0.2% in May.
BOK Park said the central bank would provide an adjusted forecast for growth this year in August.
“Annual growth depends on how fast the economy recovers,” Park said. “The Chinese economy recovered sharply. We can keep up with it.”
Economists also see signs that Asia’s fourth-largest economy will rebound in the third quarter, saying exports hit bottom in the April-June period.
“I am confident that the Korean economy will recover in the second half of this year. The point is how strong it will be,” said Oh Suk-tae, senior economist at Societe Generale in Seoul. “There is debate about whether it will be a U-shaped or V-shaped recovery, and I think it depends on how fast vaccines are developed and how long we can keep them until then.”
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