Korean exports remain sluggish in Q2 as GDP sees worst contraction since 2008

South Korea's real gross domestic product contracted 3.2% quarter on quarter, posting 448.2 trillion won ($378.1 billion) in Q2, according to the Bank of Korea on September 1. The GDP has posted two consecutive quarters of negative growth, with the second quarter posting a negative 2.7% year-on-year decline.

The figure is 0.1% point lower than the estimated 3.3% contraction from July, but is still the biggest contraction since the fourth quarter of 2008 when the global financial crisis hit home.

According to the central bank, private spending increased by 1.5% on account of the emergency stimulus package issued by the government. Investments in facility and construction posted negative 0.5% and negative 1.5% growth, respectively. Real gross national income posted negative 2.2% growth, marking the biggest drop since the fourth quarter of 2008.

Last week, the Bank of Korea revised its 2020 growth forecast to negative 1.3%, signaling that a third domestic contraction is on the horizon. There are views that the GDP growth rate may dip to negative 2.2% this year if the coronavirus spread does not slow by year-end.

The central bank’s forecast is based on second-stage social distancing, which means that the GDP could drop as low as the negative 3% range, given that social distancing measures have been raised to 2.5 stage as of August 30, limiting restaurant operating hours, banning gatherings of more than 50 people indoors, and enforcing only take-outs for coffee shops.

The global pandemic has also delivered a heavy blow to Asia’s fourth-largest economy, which relies heavily on trade.

Korea's exports in August posted $39.6 billion, a 9.9% year-on-year decline from $44 billion in 2019, according to the Ministry of Trade, Industry and Energy.

During the second quarter, exports of semiconductors (2.8%), home appliances (14.9%), bio-health products (58.8%), and computers (106.6%) saw an increase while other products did not perform well.

Monthly exports dropped from 3.5% in February to 1.6% in March in the wake of the global coronavirus. From the April to June period, Korean exports posted double-digit declines.

From July, the country has seen a slight turnaround as exports posted only a single-digit decline for the month. Yet, Korea’s export growth rate stands at a negative 16.1%, the lowest in 56 years since posting a 24% drop during the fourth quarter of 1963, according to the Bank of Korea.

Write to Soo-young Seong at syoung@hankyung.com