South Korea: GDP expected to contract further this year – UOB

Economist at UOB Group Ho Woei Chen, CFA, gives her opinion on the GDP prospects in South Korea this year.

Key Quotes

“South Korea’s 1Q2020 GDP posted the largest quarter-on-quarter (q/q) contraction since the Global Financial Crisis at -1.4%... The GDP contraction back in 4Q08 was -3.3% q/q.”

“The advance GDP data showed that private consumption suffered the largest fallout in 1Q2020 as it contracted -6.4% q/q while exports fell by -2.0% q/q mainly due to falling shipments of motor vehicles, machinery and chemical products while semiconductors exports were positive.”

“Mitigating factors in 1Q2020 were the positive momentum in investment and government’s support measures. Gross fixed capital formation (GFCF) rose for the second consecutive quarter by 0.9% q/q with both construction and facilities investment in expansion. Meanwhile, government consumption rose by 0.9% q/q.”

“Given that global demand and supply chain are harder-hit by the COVID-19 pandemic in the major economies in 2Q2020, the positive trends in investment and semiconductor exports may not hold into the second quarter. As such, the Korean economy is expected to slip into a recession with at least a further q/q contraction in 2Q2020. This would translate into year-on-year GDP contractions in 2Q and 3Q 2020 compared to the positive 1.3% y/y growth in the first quarter.”

“For the full-year 2020, we expect the GDP to contract by 1.0% though the drop in domestic COVID-19 infections and easing of social distancing measures as well as strong fiscal and monetary policy support could reduce the hit on the economy.”