2Q Growth Rate -3.2%... Bank of Korea Says "Per Capita National Income Likely to Stay at $30,000" (Comprehensive)

Bank of Korea '2020 Q2 National Income (Preliminary)'

Q2 Growth Rate Revised Up from -3.3% to -3.2%, Upward Adjustment from Flash Estimate
GDP Deflator Turns Positive for the First Time in 6 Quarters
BOK "If Exchange Rate Stays Below 1292.6 Won for Remaining 4 Months, $30,000 National Income Achievable"

[Asia Economy Reporter Kim Eunbyeol] Due to the impact of the novel coronavirus infection (COVID-19), South Korea's economic growth rate in the second quarter (April to June) recorded -3.2%. Although this is a 0.1 percentage point upward revision from the preliminary figure (-3.3%), it is the lowest level since the financial crisis (4th quarter of 2008). The real GDP for the second quarter was -2.7% compared to the same period last year, marking the lowest since the foreign exchange crisis in the 4th quarter of 1998 (-3.8%). Nominal Gross National Income (GNI), which reflects inflation, decreased by 1.2%, but it is expected that the per capita national income will maintain the $30,000 range this year.

Second Quarter Economic Growth Rate Revised Upward from Preliminary Figure... Lowest Since Q4 2008

According to the '2020 2nd Quarter National Income (Provisional)' announced by the Bank of Korea on the 1st, the real Gross Domestic Product (GDP) for the second quarter was 448.2093 trillion won, down 3.2% from the previous quarter. Accordingly, the GDP growth rate for the second quarter was revised upward by 0.1 percentage points from the preliminary figure (-3.3%) announced last month. At the time of the preliminary announcement, the second quarter economic growth rate was the lowest since the foreign exchange crisis (1st quarter of 1998, -6.8%), but after the upward revision, it became the lowest level since the financial crisis (4th quarter of 2008, -3.3%).

Park Seongbin, Head of the National Accounts Division at the Bank of Korea's Economic Statistics Bureau, explained, "Looking at the second decimal place, the preliminary figure was -3.33%, and the provisional figure is -3.15%, an upward revision of 0.18 percentage points," adding, "On an annual basis, this results in a growth rate upward effect of about 0.04 to 0.05 percentage points." On the 27th of last month, the Bank of Korea projected this year's annual growth rate at -1.3%. This figure is achievable if the growth rates for the third and fourth quarters each record 1.3% compared to the previous quarter.

Comparing the preliminary and provisional figures for the second quarter by economic activity, manufacturing was revised upward by 0.1 percentage points, and services by 0.2 percentage points. Manufacturing decreased by 8.9% quarter-on-quarter due to declines in transportation equipment, computers, electronics, and optical devices, while services decreased by 0.9%, mainly in wholesale and retail trade, accommodation and food services, transportation, culture, and other services.

By expenditure item, construction investment was revised downward by 0.2 percentage points, while facility investment and private consumption were revised upward by 2.5 percentage points and 0.1 percentage points, respectively. Private consumption increased by 1.5%, centered on durable goods such as passenger cars and home appliances. Facility investment decreased by 0.5% due to a decline in transportation equipment despite an increase in machinery. Construction investment decreased by 1.5% due to a decline in building construction. Government consumption increased by 1.1%, mainly due to spending on goods. Exports decreased by 16.1%, centered on automobiles and mobile phones, while imports decreased by 6.7%, mainly due to crude oil.

This provisional economic growth rate was calculated using all indicators from April to June, unlike the preliminary figure announced based on surveys from April to May. Additional data such as June industrial activity trends, balance of payments, and corporate performance data were incorporated.

Park Sung-bin, Director of the National Accounts Division at the Economic Statistics Bureau of the Bank of Korea, is explaining the provisional second quarter national income at the Bank of Korea in Jung-gu, Seoul on the 1st.

GDP Deflator Turns Positive After Six Quarters... Nominal GDP Decline Rate Improves Reflecting Inflation

The nominal GDP growth rate, which reflects prices on real GDP, recorded -1.0%. While the real GDP growth rate fell nearly 2 percentage points from -1.3% in the first quarter to -3.2% in the second quarter, the nominal GDP growth rate improved from -1.6% to -1.0% during the same period. This is because the GDP deflator, which shows the overall price level of the country, turned positive at 1.2%. It is the first time in six quarters since the 4th quarter of 2018 that the GDP deflator has recorded a positive figure.

Park explained, "Due to the impact of COVID-19, the domestic demand deflator fell to 0.7% from 1.7% in the first quarter, but the export (-6.4%) and import deflators (-8.8%) fell more sharply." He added that as COVID-19 affected the world, international oil prices dropped to $20-30 per barrel in the first half of the year, causing import prices to fall more sharply than export prices, which had the effect of raising the overall deflator. Park also noted, "The decline in oil prices reduced production costs for companies, thereby improving profitability."

It is also noteworthy that the decline in real GNI, an indicator showing the real purchasing power of income earned domestically and abroad over a certain period, was smaller (-2.2%) than the decline in real GDP (-3.2%). This was influenced by an improvement in terms of trade, with real trade losses decreasing from 12 trillion won in the first quarter to 6 trillion won in the second quarter. However, nominal GNI in the second quarter decreased by 1.2% quarter-on-quarter, somewhat underperforming nominal GDP growth. This was due to a decrease in net primary income from abroad, mainly dividends.

Meanwhile, contrary to some concerns, the Bank of Korea also analyzed that this year's per capita national income is likely to comfortably reach $30,000. Park said, "Assuming nominal GNI grows about -1% annually (based on the Bank of Korea's baseline scenario), if the annual average exchange rate does not exceed 1,233.60 won, achieving a per capita national income of $30,000 is possible." He added, "Considering that the average exchange rate from January to August 28 was 1,203.6 won, if the average exchange rate for the remaining four months stays below 1,292.6 won, the possibility of reaching $30,000 is quite high."

Meanwhile, the total savings rate in the second quarter recorded 34.5%, down 1.6 percentage points quarter-on-quarter, as final consumption expenditure (1.3%) increased while gross national disposable income (-1.2%) decreased. The gross domestic investment rate (32.7%) rose 1.5 percentage points quarter-on-quarter due to increased investment in intellectual property products.

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