Economy runs out of steam in first quarter

Korea’s economy shrunk in the first quarter when compared to the previous quarter - and the next few months look no better.

The Bank of Korea (BOK) announced Thursday that Korea’s GDP contracted 1.4 percent during the January-March period compared to the previous quarter. It was the worst contraction in nearly 12 years since negative 3.3 percent growth in the fourth quarter of 2008.

But it was not the first shrinkage since then. The economy fell 0.1 percent in the fourth quarter of 2017 compared to the quarter before and 0.4 percent in the first quarter of 2019.

Compared to the same period last year, Korea’s economy grew 1.3 percent in the first quarter, the slowest year-on-year growth since the third quarter of 2009’s 0.9 percent.

“Government spending as well as investment in equipment and construction slowed while private consumption and exports shifted to a downward trend,” the BOK said.

Private consumption recorded a 6.4 percent drop in the first quarter compared to the previous quarter. That was the sharpest drop since the first quarter of 1998, when the Asian financial crisis dragged down that figure by 13.8 percent. Compared to the same period last year, it also recorded a slump of 4.7 percent.

Exports dropped 4.1 percent compared to the previous quarter with machinery and car exports shrinking 2 percent despite better-than-expected performance by semiconductors.

Government spending increased 0.9 percent, and construction investment was up by 1.3 percent, but they weren’t enough to offset the slump in consumption in the private sector as people stayed home due to the coronavirus outbreak.

The BOK announcement came a week after China announced minus 6.8 percent year-on-year economic growth in the January-March period, its first contraction since Beijing started compiling figures in their current form in 1992.

“It might seem that Korea’s economic shock is not as bad compared to China, but considering the pattern of Korea’s economy in the past, it is hard to say that the figure is okay,” said Park Yang-su, head of the BOK’s economics statistics department during a press briefing Thursday.

The virus-driven economic fallout in Korea could be more severe in the second quarter, he predicted, especially for exports.

“Covid-19 became a worldwide pandemic in March so the global demand shrinkage will be reflected in export figures in the second quarter,” Park said. “Korea’s employment situation worsened in March, which will also play a negative role in the domestic economy.”

According to the Korea Customs Service, Korea’s exports fell 27 percent in the first 20 days of April compared to the same period last year.

Finance Minister Hong Nam-ki said the country should brace for worse in the second quarter.

“Investment and exports that were planned last year were able to buffer some of the economic slowdown in the first quarter,” said Hong at the policy meeting Thursday. “From the second quarter, however, the global economic recession will be in full swing, resulting in a worse employment shock in Korea.”

Korea lost about 195,000 jobs in March, recording the steepest monthly drop since 2009. It was the country’s first on-year job loss since 2009.

“It is likely that the second quarter will experience steeper negative growth,” said Park Sang-hyun, an analyst at Hi Investment & Securities.

“Consumption in both the public and private sectors will get better with the virus starting to subside, but with the unstable employment market, it is unlikely the economy will rebound quickly.”

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]