[Q&A] If the remaining three quarters grow continuously by 0.6~0.7%, 1% growth is possible this year

Q1 Growth Rate at -1.4... "Hard to Say It's at an Acceptable Level"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Bank of Korea forecasted that if the economy grows by 0.6~0.7% (quarter-on-quarter) for three consecutive quarters starting from the second quarter of this year, a 1% growth for the year is achievable.

On the 23rd, Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, said at the '2020 Q1 Real Gross Domestic Product (Preliminary)' briefing, "Mathematically, to achieve 1% growth, the economy needs to grow by 0.6~0.7% (quarter-on-quarter) for three consecutive quarters starting from Q2."

The economic growth rate for the first quarter of this year recorded -1.4%. This was due to a decline in private consumption and exports caused by the impact of the novel coronavirus disease (COVID-19).

In particular, private consumption decreased by 6.4% compared to the previous quarter due to weakened consumer sentiment and movement restrictions. This is the largest decline since Q1 1998 (-13.8%).

Below is a Q&A with Director Park.

▲ How do you evaluate the growth rate in Q1?

= After a 1.3% growth in Q4 last year, COVID-19 occurred and spread significantly, impacting the economy from mid-February onward. Economic activities, especially in the service sector and private consumption, were severely contracted, resulting in a -1.4% growth rate. Compared to the sharp decline in economic growth rates in China and other countries in Q1, South Korea's -1.4% might seem relatively less severe, but looking at past economic growth patterns, it is hard to say that -1.4% is an acceptable level.

▲ To what extent was the impact of COVID-19 reflected in the Q1 growth rate?

= I will estimate using macro indicators. Since the growth rate in Q4 last year was high, the consensus forecast before COVID-19 occurred was that Q1 would be around par due to the base effect. However, the situation changed with consumption shrinking and private economic activities being restricted, resulting in a -1.4% growth rate. Initially, the government contribution was expected to be quite high in Q4 last year, so a negative base effect was anticipated for Q1, but the actual figure was 0.2%. If the government contribution is at least 0.5~0.6% in the actual -1.4% growth rate, it can be seen that the private sector's growth contribution was reduced by about 2 percentage points due to COVID-19.

▲ Do you expect the impact of COVID-19 on GDP growth to intensify in Q2?

= Employment deteriorated significantly in March, and this is likely to continue, which negatively affects domestic demand. On the other hand, there is the export sector. It is said that exports performed relatively well in Q1, mainly due to semiconductors. Semiconductors played a somewhat supportive role because contracts made earlier continued to be fulfilled in Q1. However, from Q2, with the global spread of COVID-19, other countries' growth rates have worsened significantly, and the contraction in global demand is likely to be reflected in exports. For example, export growth from April 1 to 20 showed a -27% decline. Although semiconductor exports decreased relatively less, they turned negative. Therefore, negative export growth could affect Q2 growth. The Q2 growth rate will depend on the extent to which domestic demand contraction is alleviated and the degree of export decline due to global demand contraction.

▲ What average growth rate from Q2 to Q4 is needed for the annual growth rate to be in the 0% range or higher?

= Mathematically, to achieve 1% growth, the economy needs to grow by 0.6~0.7% for three consecutive quarters starting from Q2. To achieve 0% growth, the economy needs to maintain around par, similar to Q1 levels, for three consecutive quarters from Q2 to Q4.

▲ If positive annual growth is possible, what factors would contribute to it?

= Currently, it is expected that the global COVID-19 situation will gradually ease around the end of May, and the contraction in demand will relatively decrease in the second half of the year. Additionally, with the strengthening of economic activities through non-face-to-face methods in the untact economy, this will positively affect South Korea and semiconductor exports. If these factors act together as positive influences, we can expect that the growth record will not be very poor.

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