This Recession Is Reason to Cheer Amid the Carnage


Hail the South Korean recession. 

Only in the world of Covid-19 is a poor economic report card something to cheer. Gross domestic product shrank 3.3% in the second quarter from the previous three months, the Bank of Korea said Thursday. That was worse than forecast and followed a decline of  1.3% for the January-March period. No matter: The performance is streets ahead of many industrialized countries. Japan, for example, will show a contraction of more than 20%, according to economists. Global GDP is likely to have dipped about 10% in the second quarter from a year earlier, according to Bloomberg Economics. 

Korea is doing well, by comparison. Moreover, indicators suggest activity bottomed toward the end of the quarter. That’s consistent with signs of a bounce in many economies as lockdowns were eased. Consumer sentiment is healing and exports, which were hammered early in the year, are showing much smaller declines. Korea is well placed to benefit from a prolonged stretch of work-from-home. Samsung Electronics Co. and SK Hynix Inc. have enjoyed increased demand for their memory chips. The shift to kitchen-table commutes coupled with an uptick in video calls and streamed content spurred corporations and internet companies to boost installation of servers, which are heavy users of DRAM.

The numbers are testament to a skillful pandemic response. Korea is one of the few developed economies that refrained from shutting down huge chunks of the economy. Seoul leaned instead on mass testing and contact tracing. On the face of it, the shallow nature of this recession is a direct consequence of that choice. Not that the government was remotely passive, pledging stimulus worth about 14% of GDP. Without the increase in fiscal spending, the slump would have been greater. 

While President Moon Jae-in could be forgiven for exhaling after Thursday’s numbers, the country isn’t out of the woods. Exports account for more than a third of GDP and it’s awfully hard to enjoy a meaningful recovery when the rest of the world is struggling to climb out of the deepest hole since the 1930s. Global activity isn’t likely to return to its pre-pandemic level until at least 2022. The International Monetary’s Fund’s projection of a 4.9% dip in world growth is dependent on no big return of viral infections. With renewed outbreaks roiling the U.S. and some restrictions reimposed in parts of Asia, that assumption looks vulnerable.

It’s also important to remember that as good as Korea’s outcome is, it’s still disappointing for some officials. The central bank indicated last week that it will lower its forecast of a 0.2% annual decline in the economy. Prolonged support from both the BOK and the Blue House will be necessary. The passage of a third fiscal-stimulus bill at the start of this month will help. 

Korea is showing the benefits of keeping malls and restaurants open when other nations put them in mothballs. But it would be unwise to assume this strategy is set in stone. We learned a few months ago that when it comes to infectious disease, what leaders say one week may cease to apply the next. A country that has generally done a good job tackling the pandemic can quickly be placed on the defensive, as has been the case in Australia recently with a surge in cases in Melbourne.

Caveats aside, South Koreans shouldn’t feel too beaten up by this recession. It could have been a whole lot worse. GDP numbers rolling in over the next few weeks are likely to show dire circumstances in many places. Korea hasn’t quite dodged the bullet, but it has ducked a cannon ball. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

©2020 Bloomberg L.P.

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