The coronavirus pandemic pushed South Korea’s economy into its biggest contraction since 2008 in the first quarter, as self-isolation measures hit consumption and global trade slumped.
Finance minister Hong Nam-ki said in a policy meeting Asia’s fourth-largest economy should brace for a bigger shock from the second quarter as demand from major trading partners plummets.
South Korea’s virus containment measures are being closely watched by governments elsewhere as it has managed to bring down infections without the kinds of heavy shutdowns seen in other jurisdictions.
However, the pandemic’s hit to global trade has left the export-reliant economy under extreme pressure.
Gross domestic product decreased by a seasonally adjusted 1.4% in the first quarter from three months earlier, preliminary central bank data showed on Thursday, a slightly smaller decline than the 1.5% contraction seen in a Reuters poll and reversing 1.3% growth in the fourth quarter.
Highlighting the challenges in domestic demand, private consumption shrank 6.4% on-quarter to mark the worst reading since a 13.8% contraction in the first quarter of 1998, during the Asia Financial Crisis.
“The economy is likely to contract for at least another quarter as hard times will continue for exports,” Moon Jung-hui, an economist at KB Bank said.
“Consumption will improve especially on increased fiscal expenditure, but exports of key items including petrochemical products will suffer.”
Since late January, the economy has been paralysed by self-isolation measures across the country, which kept businesses and shops closed and workers stuck at home.
South Korea has largely managed to bring the outbreak under control and has recently reported daily new cases of about 10. Total cases were at 10,702 as of midnight Wednesday.
The government on Sunday began relaxing some social distancing rules, but the economy is spiraling toward its first technical recession since 2003, defined as two straight quarters of decline, as the pandemic stymies an export recovery.
Thursday’s data showed exports declined 2% from the fourth quarter, while construction investment and capital investment rose 1.3% and 0.2%, respectively.
Exports for the first 20 days of April plunged nearly 27% year-on-year, and shipments are set to shrink further over the coming months as top trading partners such as Europe and the United States remain in lockdown.
Park Yang-su, a director general at the BOK, told a press briefing that the economy faces an uphill battle to revive growth and the trajectory “depends on the severity of weakness in global demand and domestic demand.”
From a year earlier, the economy grew 1.3% in the first quarter, slowing from 2.3% growth in the fourth quarter and compared with 0.6% seen in the poll.
Investors worry a slump in the Chinese economy could severely dent global growth and demand for key South Korean exports items including memory chips and petrochemical products.