Exports are increasing rapidly, economic growth in the third quarter is almost 2 percent: South Korea is emerging from the recession with momentum. This is due to China, the good handling of the pandemic – and the spread of the home office.
SSouth Korea is leaving the Covid recession behind with momentum. In the third quarter, the gross domestic product grew by 1.9 percent after adjustment for prices compared to the previous quarter. The driving force was exports, which, according to preliminary figures from the Bank of Korea, grew by 15.6 percent in the period from July to September, the highest level in 34 years.
The country is benefiting from the economic recovery in China, but also from the great demand for its technology products such as semiconductors. The electronics industry with companies such as Samsung Electronics and SK Hynix is gaining global demand for computers and other electronic devices as a result of the withdrawal to the home office. This demand has recently also translated into increasing investments in machinery and transport equipment.
Successful against the virus
The twelfth largest economy in the world is also reaping the fruits of a quick and often lauded response to the corona pandemic. In the first few weeks of the pandemic, before infection numbers skyrocketed in the west, South Korea was the second worst hit country after China. However, Korea largely kept the virus in check with strict hygiene and quarantine measures. The country avoided a general “lockdown”. South Korea has had around 26,000 infected and 457 dead since February. That’s 9 deaths per million inhabitants. In Germany there are 121 deaths per million inhabitants.
The recession in the first half of the year was much weaker than in other industrialized countries. For the year as a whole, the International Monetary Fund (IMF) expects economic output to shrink by 1.9 percent. Alex Holmes from Capital Economics estimates a minus of 1 percent. That, too, would be worse than it has been since 1998, when South Korea was hit by the Asian crisis. But it would be far better than in most of the member states of the G20 group of the large industrialized and emerging countries.
The prospects for continued recovery are good. First trade data for October suggest a further increase in exports. The expansion of data centers and the 5G telephone infrastructure is ongoing, emphasizes Holmes in his analysis. That helps the electronics companies.
There is also hope for consumption. Korea largely got the flare-up in infection numbers under control in late summer. Government-subsidized shopping campaigns are now starting again and could support private consumption, which has recently contracted slightly.
Last but not least, the economy can expect a boost from fiscal policy. According to the draft budget, the government wants to increase government spending by 8.5 percent in the coming year. This effectively consolidates the additional spending leeway that Parliament had granted in four supplementary budgets this year to alleviate the Covid crisis. The IMF is forecasting growth of 2.9 percent for Korea in 2021. Capital Economics’ Holmes does not rule out a plus of 5 percent. These forecasts are subject to the proviso that the new waves of infections in the West do not burden the global economy.