GDP growth goes negative for only the third time
Korea's gross domestic product (GDP) fell 1 percent last year due to the coronavirus pandemic, the Bank of Korea said Tuesday, marking the lowest growth rate in 22 years.
It was only the third time Korea posted negative economic growth. The first time was in 1980 after the second oil shock, when growth was minus 1.6 percent. The second time was in 1998, in the depths of the Asian economic crisis, when GDP growth hit a record low of minus 5.1 percent.
Finance Minister Hong Nam-ki, however, said in a Facebook post Tuesday, "Korea managed to slip by only a little bit, proving the country's economy is strong in a crisis."
Hong added that other major developed nations are projected to do much worse, with GDPs falling three to 10 percent.
Expansionary fiscal policies through last year helped keep the fall from being greater while private consumption largely contracted.
According to central bank data, government expenditure grew by 5 percent year-on-year last year as private consumption tumbled by 5 percent. That was the biggest decline in private consumption since 1998's 11.9 percent year-on-year fall.
"The government had to play its part," said Park Yang-su, director-general of the economic statistics department at the Bank of Korea. "We expect the government's role grew in other countries as well."
By sectors, services saw a 1.2 percent year-on-year decline. Lodging and restaurant businesses shrank 5.8 percent while culture-related businesses fell 16.5 percent.
"During the first wave of the pandemic, consumption of both goods and services shrank as consumers panicked, but during the recent third wave, services were hit hard while consumption of goods was less affected," Park said.
In November, the central bank had projected that 2020's GDP growth would be minus 1.1 percent. Park said better-than-expected exports in the fourth quarter, led by semiconductors and petrochemical products, helped.
Exports in the fourth quarter grew by 5.2 percent compared to the previous quarter. But compared to a year earlier, exports fell 2.5 percent.
"Last year's economic growth was better than the industry feared, but data confirmed private consumption remains weak," said Kim Yoo-mi, an analyst at Kiwoom Securities. "The data suggests it will be inevitable for the government to spend more to support the economy."
Kim said this year, economic recovery will be led mainly by exports as private consumption will only pick up slowly.
"Until nationwide vaccinations give the country herd immunity, there will be a gap between the growth of domestic consumption and exports," said Ha Keon-hyeong, a researcher at Shinhan Investment.
BY KIM JEE-HEE [firstname.lastname@example.org]