SEOUL • South Korea's jobless rate surged to its highest in more than two decades, raising concern that an export-driven recovery could be masking a harsher scarring of the economy.

The unemployment rate jumped to 5.4 per cent last month, from a revised 4.5 per cent the previous month, to hit its highest level since the Asian financial crisis. The result outstripped all survey forecasts as the economy shed almost a million jobs from a year ago for the worst losses since 1998.

The sharp deterioration in the labour market contrasts with the view that South Korea's economy was one of the best performers in the developed world last year, and suggests the government may need to take more action to support jobs.

"The huge hit to jobs is going to weigh on the pace of economic recovery," said economics professor Sung Tae-yoon from Seoul's Yonsei University. "People looking for jobs will also decrease as the economy worsens, which may technically bring down the jobless rate, but economic difficulties will continue."

South Korea's job market took a sharp turn for the worse in December, when the government tightened its social distancing rules as daily cases of Covid-19 infection rose to more than 1,000.

Last month, the sector combining retailers, wholesalers, restaurants and hotels was hit the hardest, with 585,000 job losses from a year earlier. More than 340,000 positions were shed in a sector that includes the public service as the government's job-creation measures expired before a new start. Manufacturing lost 46,000 jobs.

While resurgent export strength has put the economy on track to reach per capita income levels of the Group of Seven nations, the unemployment jump shows that the lagging impact of the coronavirus pandemic is biting deeper into employment than expected as a K-shaped recovery becomes clearer.

Policymakers will most likely be hoping that the situation eases as further government support feeds into the economy and virus restrictions are loosened further.

The government takes the situation seriously and will use all available options to deal with it, said Finance Minister Hong Nam-ki in a statement, blaming the job losses partly on expired fiscal support for job creation at the turn of the year, and a high year-earlier base.

Still, the latest figures may indicate that not enough fiscal support is coming through, or at least, not quickly enough. This potentially requires a tweaking of the timing of existing planned measures or an outright expansion, wrote Mr Rob Carnell, chief economist for Asia-Pacific at ING.

South Korean President Moon Jae-in is calling for incentives for companies that share some of their profits during the pandemic with hard-hit companies, a move that could indirectly support employment. Some lawmakers are putting pressure on the Bank of Korea to include a jobs mandate in its goals.

The job market outlook based on the country's virus caseloads looks slightly better, as the number of daily infections eased to a few hundred from more than 1,000 in December.

More fiscal stimulus under consideration may be a backstop for workers and companies that have suffered from forced business restrictions. The government is handing out its third round of cash support as part of its pandemic relief measures, and there is the possibility of a fourth round.

BLOOMBERG