The South Korean economy recorded negative growth in the second quarter this year, but the nation fared better compared to other countries. The government is also expecting a V-pattern rebound in the third quarter, as some recent economic indicators showed signs of recovery. However, some experts voiced concerns that it would be difficult for South Korea to enjoy “growth alone” amidst the spread of COVID-19.
According to the Organization for Economic Cooperation and Development (OECD) on August 2, the South Korean economy grew -3.3% in the second quarter, but this was the highest growth among the thirteen member countries that released the real gross domestic product (GDP). Even when non-member countries were included, South Korea placed second after China.
The Chinese economy grew 11.5% in the second quarter, showing a quick rebound. China, which was first hit by COVID-19, is showing strong signs of recovery in all areas including consumption, investment and trade.
Meanwhile, major countries like the United States (-9.5%), Germany (-10.1%), France (-13.8%), Italy (-12.4%) and Spain (-18.5%) failed to rebound from a sluggish economy. The economy of the fourteen countries that recently released their growth rates grew on average -9.6% in the second quarter.
Earlier in June, the OECD evaluated that economic contraction in South Korea would be limited compared with other member countries due to the government’s effective quarantine measures and massive spending, and presented the highest growth forecast for this year among the member states: a -1.2% growth in a single-hit (COVID-19) scenario, and a -2.5% growth in a double-hit scenario.
The government expects the economy to be able to make a strong comeback like China in the third quarter. According to the June industrial activity trend, production, consumption and investment all increased for the first time in six months since last December, and the decrease of exports in July also fell to a single-digit figure, showing signs of recovery.
On August 1, Hong Nam-ki, deputy prime minister cum minister of economy and finance wrote on Facebook, “The recently released domestic indicators show signs of hope for an economic rebound,” and added, “I am determined to achieve a clear recovery in the third quarter.” Fourteen overseas economic research institutes and investment banks also expected South Korea to end the two consecutive quarters of negative growth and achieve an average 1.3% growth in the third quarter.
However, some experts pointed out that it would be difficult to see an economic recovery strong enough to overcome the base effect continue. South Korea is highly dependent on exports, so with the ongoing COVID-19 outbreak, it will be difficult to tow economic growth with domestic consumption alone. Since July, thirty-four overseas investment banks predicted the South Korean economy to grow an average -0.8% this year. In other words, a negative forecast for annual growth is still dominant.
In fact, external conditions centered on the U.S. are not making things any easier. The American investment bank, Goldman Sachs stressed that if COVID-19 rapidly spread again, they could not rule out the possibility of the U.S. economy recording negative growth in the fourth quarter. In the Federal Open Market Committee (FOMC) held on July 29 (local time), the U.S. Federal Reserve also acknowledged the recent economic rebound in some areas, but assessed that compared with pre-pandemic levels, the performance was still poor and expected the future economy to be largely influenced by COVID-19.
Cho Young-moo, a researcher at LG Economic Research Institute said, “Right now, the OECD growth forecast in a double-hit scenario is probably the most realistic.”
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