Korea Expected to Have Emerged From Recession in Better Shape Than G-7
(Bloomberg) -- South Korea’s economy looks set to rebound from a pandemic-triggered recession in a stronger position than most developed nations, aided by an exports recovery, stimulus measures and its relatively successful containment of the coronavirus.
Gross domestic product likely expanded 1.3% in the third quarter from the previous three months, according to economists’ estimates ahead of the official release due Tuesday. That would confirm the trade-reliant economy has emerged from its first recession since 2003 with relatively limited damage compared with many other parts of the world.
A positive GDP report would set the stage for President Moon Jae-in to pivot from rescuing the economy to stimulating growth and even a longer-term goal of expanding tech sector jobs. The fourth quarter may see activity pick up further should Korea succeed in keeping the virus under control and a global recovery gathers pace.
The expected recovery has been aided by a rebound in exports led by chips and tech demand, and the expansion of China, Korea’s biggest overseas market. A brief resurgence of infections during the quarter set back consumption, but the country managed to contain infections with targeted business restrictions, heading off a broader hit to growth.
“We expect a Nike swoosh recovery to continue in 4Q,” said Tieying Ma, economist at DBS Bank. “A further release of pent-up consumer demand could be expected in 4Q, as the second wave infection has started to taper off. Meanwhile, semiconductor exports will likely pick up further.”
Moon last week called for steps to seize on a “golden time” to revitalize tourism and boost consumption. The government resumed the distribution of discount coupons -- halted during the second virus wave -- to encourage spending, and is promoting an annual shopping event in early November to accelerate the recovery.
From a year earlier, the economy still likely contracted 1.9% in the third quarter, according to surveyed economists. Bloomberg Economics expects South Korea’s GDP to reach pre-virus levels in the first quarter of 2021, years earlier than its neighbor Japan.
Korea’s fiscal push has been at the center of its early recession exit. The government has carried out four extra budgets this year, the most in decades, including universal cash handouts. The central bank has also slashed its benchmark rate to a record low, while pumping liquidity into financial markets to help businesses stay afloat.
What Bloomberg’s Economist Says
“For 2020, our baseline forecast remains a 1% contraction in GDP -- which would be less than most major economies. But with winter approaching, the potential for renewed outbreaks at home and abroad is a key risk.”
-- Justin Jimenez, economist
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Still, as the global pandemic drags on, Korea continues to shed hundreds of thousands of jobs each month and consumers and businesses remain wary of a potential virus flareup. That’s making it unlikely the country will avoid an annual contraction this year, its first since the Asian financial crisis.
©2020 Bloomberg L.P.