Korea's Q1 Growth Rate to Be Announced on the 23rd... Likely Below -1%

Possibility of Negative Growth on an Annual Basis This Year

[Asia Economy Reporter Eunbyeol Kim] Due to the economic shock caused by the spread of the novel coronavirus infection (COVID-19), there is a forecast that South Korea's growth rate in the first quarter will fall short of -1%. This could mark the lowest quarterly growth rate in over 11 years since the global financial crisis.

On the 19th, Bloomberg reported that the average forecast for South Korea's real gross domestic product (GDP) growth rate in the first quarter, based on data collected by the 8th from nine domestic and international economic research institutions and investment banks (IBs), stood at -1.5% quarter-on-quarter.

This average was calculated from revised growth forecasts by Standard Chartered, Barclays, HI Investment & Securities, HSBC, IHS Economics, JP Morgan, Oxford Economics, Soci?t? G?n?rale, and Bank of Nova Scotia. Even excluding the lowest forecast from Bank of Nova Scotia (-3.4%), the average forecast remained at -1.3%, still below -1%.

Falling short of -1% growth, if this forecast materializes, the economy in the first quarter will record the lowest growth rate in 11 years and 3 months since the fourth quarter of 2008 (-3.3%), when the financial crisis occurred.

The Bank of Korea will release the preliminary real GDP figures for the first quarter on the 23rd.

The contraction in South Korea's economy in the first quarter is due to the severe impact on the real economy caused by the spread of COVID-19, as well as the unexpectedly high growth rate in the fourth quarter of last year, driven by fiscal stimulus and strong exports.

In particular, the sharp surge in confirmed cases centered in Daegu and Gyeongbuk from late February led to a rapid contraction in domestic demand, especially in the service sector, which became a decisive factor in the first quarter's economic contraction. Juwon, head of the Economic Research Office at Hyundai Research Institute, said, "Considering the very large negative growth rate in China in the first quarter, there is a possibility that South Korea's first-quarter growth rate will also show a larger negative figure than initially expected."

The problem is that the growth rate in the second quarter may also be sluggish. Although exports, the growth engine of the Korean economy, performed relatively well until the first quarter, the decline in exports may be fully reflected from the second quarter as COVID-19 spreads to advanced countries. Exports, based on customs clearance data, increased by 4.5% year-on-year in February and decreased by only 0.2% in March, indicating limited impact from COVID-19. However, from the second quarter, as COVID-19 spreads worldwide including the United States and Europe, exports are expected to be hit.

Accordingly, there are warnings that the annual growth rate could also fall into negative territory. Earlier, the International Monetary Fund (IMF) forecast in its economic outlook report released on the 14th that the global economy is facing the worst recession since the Great Depression of the 1930s, projecting South Korea's growth rate this year at -1.2%. Lee Ju-yeol, Governor of the Bank of Korea, recently stated at a press conference, "It will be difficult for the Korean economy to achieve growth in the 1% range this year, but positive growth will be maintained," forecasting growth in the 0% range.

This content was produced with the assistance of AI translation services.