Asia’s fourth largest economy fell 1.4% between January and March compared with the fourth quarter of 2019, according to an estimate released Thursday by the Bank of Korea. The drop was slightly better than analysts polled by Refinitiv expected, but remains the worst for more than a decade.
The economy continued to grow 1.3% from the previous year. But the growth rate was slower than the 2.3% year-on-year growth of 2.3%.
Consumer spending fell 6.4% from the previous quarter, while exports fell 2%. South Korea was struck by the virus very early on, and at one point experienced one of the largest epidemics outside of mainland China.
Since early March, however, the rate of daily infections has slowed considerably – the country has about 10,700 cases recorded to date, with 238 deaths, according to Johns Hopkins University.
The country’s government has been among the most ambitious when it comes to providing the public with free and easy testing options. Experts have attributed South Korea’s decline in new cases of coronavirus to its initial screening efforts, a successful example of what is now commonly known as “flattening the curve”.
But the South Korean economy will still be hit as the rest of the world faces the pandemic, according to Alex Holmes, Asian economist for Capital Economics.
“Widespread blockages around the world are weighing heavily on external demand, which will severely affect the Korean export-oriented economy,” he wrote in a note on Thursday.
Trade data for the first 20 days of April showed that exports were down almost 27% from a year ago.
This “gives[s] a taste of what’s to come, “said Holmes.
Meanwhile, he said “domestic demand is not expected to recover much this quarter as people continue to distance themselves from society.”
Even general investment is expected to decline due to growing uncertainty, he said. Investment increased slightly in the first quarter.
The prospects for future growth are more worrying. Capital Economics forecasts that the Korean economy will contract by 6% in the second quarter compared to the previous quarter, and will decrease by almost 3% over the whole year.
Before the virus struck, the export-dependent South Korean economy was already grappling with a trade dispute with Japan and declining shipments to China. The latter country also saw its own economy collapse during the US-China trade war.
And although South Korea now appears to be in control, the economic pain is tangible. Earlier this week, the government announced a third bailout plan to protect businesses from failure. In total, the government has spent or announced its intention to spend 135 trillion Korean won (110 billion USD), or about 7% of its GDP.
But it is unlikely to save the economy from a “massive recession,” according to Holmes.