Business & Economy

South Korean economy records biggest contraction since 1998

Seoul, Jan 26 (efe-epa).- South Korea’s gross domestic product (GDP) contracted by 1 percent in 2020 compared to the previous year, the biggest drop for Asia’s fourth largest economy since 1998, according to data published by the country’s central bank on Tuesday.

The figure, owing to the impact of the Covid-19 pandemic, is a slight improvement on the forecast of -1.1 percent that the Bank of Korea (BoK) had made.

However, it is the biggest contraction since 1998, when South Korea’s GDP shrank by 5.1 percent due to the impact of the Asian financial crisis.

Exports, which form a major pillar of the Asian country’s economy and are among the top contributors to the country’s GDP, declined by 0.5 percent year-on-year in 2020 while private consumption fell by 5 percent, according to the BoK.

These declines are respectively due to the weakening of global demand due to the impact of the pandemic and the effect on household spending of social distancing measures and other restrictions imposed by the South Korean government to curb the spread of Covid-19.

In contrast, government spending rose by 5 percent, and capital investment increased by 2.6 percent, which helped offset declines in other areas.

The contraction of the South Korean economy in 2020 was somewhat cushioned by developments during the last two quarters of the year, when the economy expanded by 2.1 percent and 1.1 percent respectively.

The main factor behind this improvement was the recovery in exports, which grew by 18.4 percent between July and September compared to the previous quarter and 5.2 percent between October and December.

The Bank of Korea expects the economy to recover in 2021 and end the year with an expansion of 3 percent. This is an upward revision of its previous estimate of a 2.8 percent expansion of the GDP.

But this recovery could be weakened by the impact of the third wave of coronavirus infections in the country that has been running since mid-November, which has led the South Korean authorities to impose new restrictions.

South Korea also recorded its biggest job losses in 22 years in 2020.

The statistics office estimates that the number of employed persons declined by some 218,000 in 2020, the worst drop since 1998, to stand at 26.5 million.

The country’s unemployment rate increased by 0.7 percent in December to stand at 4.1 percent. EFE-EPA


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