Q2 -3.3% 'Growth Rate Panic'... Worst Since Currency Crisis

'2020 2nd Quarter GDP Preliminary Report'
Exports -16.6%, Lowest Since 1970s...Private Consumption Turns Positive

[Asia Economy Reporters Eunbyeol Kim and Sehee Jang] South Korea's economic growth rate in the second quarter fell at the largest rate since the foreign exchange crisis. The prolonged impact of the novel coronavirus disease (COVID-19) caused exports to perform much worse than expected, which was the biggest factor. The Korean economy entered a recession phase, recording negative growth rates for two consecutive quarters for the first time in 17 years.

On the 23rd, the Bank of Korea announced that the real gross domestic product (GDP, preliminary figure) 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. When compared to the second decimal place, it was even worse than the fourth quarter of 2008 during the financial crisis. The growth rate was -3.28% during the financial crisis, while it was -3.33% in the second quarter of this year.

The problem was the slow recovery in exports. Exports, which recorded -1.4% in the first quarter, fell further to -16.6% in the second quarter. Exports are at their lowest level since the 1970s, effectively the worst on record.

Private consumption turned positive from -6.5% in the first quarter to 1.4% growth in the second quarter. This was due not only to the slowdown in the spread of COVID-19 domestically but also to the effect of the government's emergency disaster relief funds. 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 was 0.5% in the first quarter, shifted to -1.3% in the second quarter, and facility investment dropped from 0.2% to -2.9% during the same period. The real gross domestic income (GDI) growth rate for the second quarter, considering trade conditions, fell to -2.0%, the lowest since the fourth quarter of 2008 (-3.4%) during the financial crisis.

It is also a record that the growth rate was negative for two consecutive quarters in the first and second quarters. The last time the Korean economy recorded negative growth for two consecutive quarters was during the credit card crisis in the first quarter (-0.7%) and second quarter (-0.2%) of 2003. From 1997 to 1998, there was negative growth for three consecutive quarters. Generally, overseas, two consecutive quarters of negative growth are considered a recession. This confirms a recession through growth rate indicators. Park Yang-su, head of the Economic Statistics Bureau at the Bank of Korea, said, "The National Statistical Commission previously indicated that the economic peak was in September 2017. The economy was in a contraction and downturn phase when the COVID-19 shock occurred, and the rate of decline accelerated sharply."

The combined growth rate for the first half of the year fell 0.8% compared to the same period last year. The Bank of Korea had initially forecast a -0.5% growth rate for the first half and -0.2% for the full year, but the larger-than-expected decline makes it inevitable to revise the annual forecast downward. Under the current circumstances, growth rates of 1.8?1.9% (quarter-on-quarter) in the third and fourth quarters are required to achieve an annual growth rate of -1%. Professor So-Young Kim of Seoul National University's Department of Economics said, "There is no factor for improvement in corporate investment or domestic consumption besides exports. Unless COVID-19 ends, the sluggish economic situation is likely to continue."

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