S. Korea’s GDP shrinks 1.4% in Q1, biggest decline since 4Q 2008

South Korea’s economy in the first quarter suffered its biggest decline since the 2008 financial crisis, with the coronavirus fallout likely to hit the country with greater force in the second quarter.

Korea’s gross domestic product in the first three months of 2020 contracted 1.4 percent from the previous quarter, according to preliminary data revealed by the Bank of Korea on Thursday. This was its biggest fall since the fourth quarter of 2008 when the economy slumped 3.3 percent.

Against the previous year, GDP was up 1.3 percent.

“Mild recovery in investment and exports since the fourth quarter has helped to ease the contraction in the first quarter to some extent,” said Hong Nam-ki, deputy prime minister in charge of economy, in a cabinet meeting on Thursday morning.

He predicted a worse virus impact on economic performance and jobs in the second quarter.

“We will do our upmost to cushion the damage on second-quarter GDP and prop up the economy in the latter half,” he said.

The government will announce specific action plans for the second half and propose a third supplementary budget in June.

The first-quarter results fell below market expectations, which had estimated a decline of around 1 percent.

The benchmark Kospi closed Thursday up 0.98 percent at 1,914.73. The Korean won rose 3.00, or 0.24 percent, against the U.S. dollar to 1,229.00.

Under the worst scenario of the pandemic persisting beyond the first half, the Korean economy could see its first annual contraction this year since the Asian financial crisis in 1998. The pandemic is likely to take a bigger toll in the second quarter and put the country in a technical recession, or negative growth for two consecutive quarters.

Exports, the country’s main engine of growth, suffered as the pandemic put many countries under lockdown and halted economic activity worldwide.

Outbound shipments in the first quarter slipped 2 percent from the previous three months, according to the preliminary GDP data. Strong sales of semiconductors were offset by the fall in shipments of automobiles, machinery and chemical products. Exports are poised to slump further, with shipments in the first 20 days of April plunging 27 percent.

Private consumption dipped 6.4 percent, the sharpest fall since 1998, knocking 3.1 percentage points off the total GDP. Service sector output dropped 2.0 percent, also the biggest decline since the first quarter of 1998 when it fell 6.2 percent.

Without the government’s record spending, the negative GDP rate could have been wider. Government spending rose 0.9 percent. Construction investment added 1.3 percent from the previous quarter largely from increased state infrastructure projects while facility investment edged up 0.2 percent.

The real gross domestic income declined 0.6 percent on quarter, suggesting weakened purchasing power.

Korea is one of the few countries to rein in the virus without resorting to draconian shutdowns. After hitting a peak of more than 900 daily new cases in late February, it has managed to bring the number down to around 10 in the past five days.

Bank of Korea Governor Lee Ju-yeol earlier this month warned that the country’s full-year growth this year could be in the zero range or even below.

Most institutions at home and abroad predict the Korean economy to contract this year. The International Monetary Fund projected a fall of 1.2 percent, which is milder compared with the average 3.0 percent contraction estimated for the global economy.

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