Containers pile up at Busan, the largest port in South Korea. Photo: AFP

With Covid-19 savaging markets, industries and consumer confidence worldwide, South Korea’s trade-reliant economy shrank 3.3 % quarter-on-quarter in the April-June period of 2020, its worst result since the devastating Asian financial crisis.

Year-on-year, the economy was down 2.9% from the same quarter in 2019, data published Thursday found.  In terms of both year-on-year and quarter-on-quarter metrics, the result marked the worst GDP contraction South Korea has experienced since 1998.

That year, the country was grappling with an economic crash that necessitated a then-record International Monetary Fund bailout. After instituting major reforms in terms of industry, finance and market access, South Korea has proven unusually recession-proof.

As a result, it has not suffered an annual economic contraction since 1998.

But 2020 looks set to change that – particularly as the Q2 result was significantly worse than had been expected. The Bank of Korea had anticipated a 2% fall, Yonhap news agency reported.

Notably, the country’s exports plunged 13.6% on-year in Q2. And even though the domestic Covid crisis peaked in March, domestic consumption continued to be weak in the second quarter, down 4.1% on-year.

Park Yang-su, the head of the BOK’s economic statistics office, declined to offer an estimate of annual GDP growth this year when asked, Yonhap reported. In its last estimate, in May, the BOK predicted a 1.8% fall.

A revised estimate is expected to be made in August. Reuters newswire cited a consensus estimate of a 0.4% contraction for the year. The IMF has a grimmer estimate, anticipating a 2.1% fall.

And it is not only South Korea.

Around the region, data from Singapore last week and Japan in May showed that both countries were in a recession. China, however, the first country to experience Covid-19, has bounced back, recording 3.2% growth in Q2.  

Even so, the latter result benefited from a low base effect. In Q1, China suffered its worse economic contraction since records began.  

Some Seoul officials were holding out hope for an improvement in Q3.

“It’s possible for us to see a China-style rebound in the third quarter as the pandemic slows,” Finance Minister Hong Nam-ki told a policy meeting on Thursday, according to Reuters.

Although Seoul did not implement any lockdowns and is pumping about 277 trillion won (US$231 billion) worth of stimulus into the domestic economy in a series of phased packages, South Korean GDP is massively reliant upon international circumstances and GDP is approximately 70% based on global trade and 40% on exports.