V-shaped economic recovery becomes elusive

29-Sep-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

The Korean economy will not be able to recover in the third quarter with the much-anticipated vigor, bogged down by record-long heavy rainfall and stricter social distancing put in place to prevent further spread of COVID-19 following an August 15 rally in Seoul, experts said Monday.

The gloomier-than-expected assessment bodes ill for Asia’s fourth-largest economy, which has been expected to report a V-shaped recovery after bottoming out in the second quarter.

Experts say the economy will contract up to 3 percent quarter-on-quarter, if the virus spreads during the Chuseok holiday which will begin September 30 and continue through October 4, during which many families from all over the country come together. Health authorities advised against visiting family and travelling for the 5-day holiday.

“The economy is certain to contract. It’s now a matter of the degree,” Seoul National University economist Kim So-young said.

The Bank of Korea said August 27 that the economy will contract 1.3 percent in 2020 due to the fallout of the prolonged COVID-19 pandemic, a sharp revision from a 0.2 percent contraction forecast in May. Yet the August revision had not factored in strengthened social distancing, a reason why the central bank said the contraction could be as great as 2.2 percent if the measures continue through the end of the year.

“The third-quarter figures measured on a quarter-on-quarter basis will be felt less woeful due to the base effect. Since consumption is unlikely to bounce back due to social distancing, the final report will hinge largely on the performance of exports that show signs of recovery,” he said.

Optimism came with signs of improvement in exports, after they contracted up to 25.6 percent year-on-year in April-June.

In the July-September period, the contraction was limited to 7.1 percent in July and 9.9 percent in August. The figure for the first 20 days in September has recorded a 3.6-percent growth year-on-year.

Unless exports log a dramatic rebound in the limited timeframe ? a highly unlikely scenario ? the economy will not be able to report a V-shaped recovery in the July-September period premised on a growth of at least 2 percent and up to 3 percent, according to Hyundai Research Institute (HRI) Economy deputy director Ju Won.

“The economy could snap out of the second-consecutive contraction, enabled by the base effect. But the datasets will have negligible impact in providing the much-needed growth momentum to make up for the woes in the first six months,” Ju said.



Category: Korea

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