S. Korea’s economy struggles with COVID-19 shock in H1 before expected recovery in H2

01-Jul-2020 Intellasia | Xinhua | 6:02 AM Print This Post

South Korea’s economy struggled with the COVID-19 shock in the first half of this year, but the economy was expected to recover in the second half thanks to fiscal stimulus packages and accommodative monetary policy.

The seasonally-adjusted production in all industries, which exclude agricultural, forestry and fishery sectors, declined 1.2 percent in May from a month earlier, Statistics Korea data showed Tuesday.

The industrial production continued to slide for the fourth consecutive month with falls of 2.5 percent in April, 0.3 percent in March and 3.5 percent in February respectively.

Output in the mining and manufacturing industry tumbled 6.7 percent in May from the previous month, while the production in the services sector increased 2.3 percent last month.

An economic fallout from the COVID-19 was estimated to have deepened in the second quarter compared to the first quarter as the coronavirus pandemic rapidly spread across the world during the April-June quarter.

The country’s real GDP, adjusted for inflation, contracted 1.3 percent in the January-March quarter compared with the previous quarter. It was the biggest quarterly fall since the fourth quarter of 2008 when the financial crisis roiled the global economy. Bank of Korea (BOK) estimated the real GDP would have retreated more than 2 percent in the second quarter from three months earlier given the faster slide in export, which takes up about half of the export-driven economy.

The outbound shipment plunged 23.7 percent in May from a year earlier, after skidding 24.3 percent in the previous month. The export inched down 0.7 percent in March.

The number of jobs declined 392,000 in May from a year earlier, keeping a downward trend for the third consecutive month. The employment tumbled 476,000 in April and 195,000 in March respectively.

Sentiment among South Korean consumers over economic situation plummeted from 78.4 in March to 70.8 in April, the lowest in over 11 years since December 2008.

The BOK slashed its benchmark interest rate by 50 basis points in March in its first emergency move since the 2008 global financial crisis, before cutting it by 25 basis points further to an all-time low of 0.50 percent in late May.

The central bank expected the South Korean economy to slump 0.2 percent in 2020, downgraded from the previous forecast of 2.1 percent growth.

Since the BOK began compiling the GDP data in 1953, the country recorded a negative GDP growth only twice in 1980 and 1998.

The Organisation for Economic Cooperation and Development (OECD) forecast in June that South Korea’s real GDP would reduce 1.2 percent in 2020 under a scenario that no second wave of the COVID-19 comes this year.

It was 3.2 percentage points lower than the previous outlook unveiled in March, but it was the highest among the OECD member countries.

South Korea’s Ministry of Economy and Finance expected the economy to grow 0.1 percent in 2020 thanks to fiscal stimulus packages and more accommodative monetary policy. The country’s real GDP expanded 2.0 percent in 2019 and 2.7 percent in 2018 each.

The government unveiled the country’s biggest-ever supplementary budget plan worth 35.3 trillion won (about 30 billion US dollars) that was submitted to the National Assembly for approval earlier this month.

It has announced a total of 250 trillion won (about 200 billion US dollars) worth of stimulus packages to financially support micro-business owners, small firms and big corporations that suffered from losses over the COVID-19.

The finance ministry said in its monthly economic assessment report, called Green Book, earlier this month that the economy’s downside risks somewhat eased amid an alleviated consumption slowdown.

Credit card spending grew 5.3 percent in May from a year earlier, after declining 5.7 percent in April and 4.3 percent in March each.

Revenue for department stores shrank 9.9 percent in May, but it was slower than a 14.7-percent drop in the previous month.

Revenue for online retailers jumped 21.9 percent in May, and passenger car sale advanced 14.0 percent last month.

The improved consumer spending was ascribable to the government’s relief grants that were given to all households.

The consumer sentiment index rose from 70.8 in April to 77.6 in May and 81.8 in June respectively.

Meanwhile, China’s economy has been on the track to recovery given the recently announced economic indicators.

Piao Renjin, an analyst at NH Investment & Securities in Seoul, said China and South Korea, the countries relatively breaking away from the COVID-19 pandemic, had higher possibilities to see their economies return to normal than other countries do.

Piao noted that if South Korea and China deepen cooperation, it will create better economic effects.



Category: Korea

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