Wed, May 22, 2024

South Korea’s Economy Fell into Recession in the Q2

The state of the local economy

South Korea fell into a recession in the second quarter. Unfortunately, Asia’s fourth-largest economy shrank by a seasonally adjusted 3.3% in the second quarter, based on the information provided by the Bank of Korea.

It is worth mentioning that is the sharpest contraction for more than two decades, more precisely since the first quarter of 1998. Moreover, this result surpassed expectations. Importantly, South Korea is not the only country that is struggling to deal with the economic impact of the coronavirus pandemic.

Japan, Thailand, as well as Singapore also fell in a technical recession. As a reminder, a recession is defined as two straight quarters of decline. This is not surprising, as the pandemic is a serious challenge for Asia’s trade-reliant economies.

Interestingly, analysts, as well as policymakers, are looking at the prospect of a recovery that would be faster than those of its regional peers. According to the country’s finance minister, Hong Nam-Ki, there is a chance that the economy will rebound in the third quarter.

Notably, the country’s gross domestic product (GDP) dropped by 2.9% in year-on-year terms. This is the biggest fall since the fourth quarter of 1998. Moreover, this result also exceeded expectations.

The local economy in the second quarter

As mentioned above, Asia’s fourth-largest economy fell into recession. Importantly, exports, which account for nearly 40% of the economy, suffered serious losses in the second quarter. Exports fell by 16.6% on-quarter to mark the worst reading in more than half a century.South Korea and financial problems

Moreover, the world’s fifth-largest steelmaker, POSCO, reported an 84.3% drop in operating profit in the second quarter. The global steel demand plummeted and this factor had a negative impact on South Korea’s POSCO.

Interestingly, second-quarter operating profit of the world’s second-largest memory chipmaker, SK Hynix, tripled. Despite this fact, SK Hynix warned of uncertainty in the second half of the year.

Construction investment dropped by 1.3% quarter-on-quarter and, at the same time, capital investment declined by 2.9%.

Moreover, the output from manufacturing fell by 9.10% while the service sector dropped by 1.1%.

Private consumption in the second quarter gained 1.4% thanks to government cash handouts. This decision helped to boost spending on restaurants, clothes, and leisure activities.

The South Korean government allocated about $231 billion worth of stimulus to tackle the economic impact of the coronavirus pandemic so far. Nevertheless, policymakers have little control when it comes to the global demand for the country’s exports.

According to the International Monetary Fund, the local economy is expected to contract by 2.1% in 2020.

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