Korea Q2 Growth Rate -3.3%... Worst Since 1998 Financial Crisis (Update)

Bank of Korea Q2 Real Gross Domestic Product

[Asia Economy Reporter Eunbyeol Kim] South Korea's economic growth rate in the second quarter fell by the largest margin since the foreign exchange crisis. The prolonged impact of the novel coronavirus infection (COVID-19) caused exports to perform worse than expected.

On the 23rd, the Bank of Korea announced that the preliminary real Gross Domestic Product (GDP) for the second quarter was 447.4 trillion won, down 3.3% from the previous quarter. This is the lowest level since the first quarter of 1998 (-6.8%) during the International Monetary Fund (IMF) foreign exchange crisis.

Comparing to the financial crisis period, the fourth quarter of 2008 recorded -3.28% growth to the second decimal place, but the second quarter of this year recorded a growth rate of -3.33%, worse than during the financial crisis.

The problem was exports, which recovered more slowly than expected. Exports, which recorded -1.4% in the first quarter, fell further to -16.6% in the second quarter. The slow recovery in the US and Europe delayed the export recovery.

Private consumption turned positive from -6.5% in the first quarter to 1.4% growth in the second quarter. This was due to the effect of the government's emergency disaster relief funds and the domestic economy recovering normally as the spread of COVID-19 slowed. However, government consumption rose by only 1.0%, down 0.4 percentage points from 1.4% in the first quarter.

Both construction and facility investment also turned negative. Construction investment, which recorded 0.5% in the first quarter, turned to -1.3% in the second quarter, and facility investment fell from 0.2% to -2.9%. A Bank of Korea official stated, "In construction investment, the decrease was centered on building construction, and facility investment showed a decline due to reduced transportation equipment, but investment in semiconductor manufacturing machinery increased."

It is also a record that the growth rate was negative for two consecutive quarters. The last time the Korean economy showed negative growth for two consecutive quarters was in the first quarter (-0.7%) and second quarter (-0.2%) of 2003 during the credit card crisis. During the foreign exchange crisis in 1997-1998, there was negative growth for three consecutive quarters. Generally, if the growth rate is negative for two consecutive quarters, it is considered a recession. This confirms a recession through the growth rate indicator.

With the shock of two consecutive quarters of negative growth, the annual growth rate for this year is expected to fall below the Bank of Korea's forecast (-0.2%).

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