South Korea rebounds from recession as exports jump

From a year earlier, the economy shrank by 1.3 per cent in the third quarter.
From a year earlier, the economy shrank by 1.3 per cent in the third quarter.PHOTO: AFP

SEOUL (BLOOMBERG, REUTERS) - South Korea rebounded from recession more strongly than expected last quarter, as the fastest export-growth in decades helped buffer the economy from a summer wave of the coronavirus that weighed on consumers.

Gross domestic product increased 1.9 per cent in the three months through September from the prior quarter, the Bank of Korea reported on Tuesday (Oct 27). Economists had forecast 1.3 per cent growth. 

The biggest jump in exports since 1986 drove the trade-dependent country’s rebound from two quarters of contraction. 

Exports soared 15.6 per cent in the third quarter in sequential terms, reversing a 16.1 per cent contraction in the second quarter. South Korea's construction sector has not rebounded as quickly as exports, though there are some signs that factory production is improving with manufacturing sector output up 7.6 per cent from the second quarter.

On a year-on-year basis, the economy shrank 1.3 per cent in the third quarter, after declining a revised 2.7 per cent in the second quarter.

South Korea’s economy is coming back from its pandemic-triggered recession in a stronger position than most developed nations. But the recovery is vulnerable to disruptions in the US and Europe, where the epidemic is worsening, but the country’s key chip exports are benefiting from a global shift to work-and study-from-home and China is supporting demand.

“This speaks to the resilience of a manufacturing powerhouse,” said economist Oh Jae-young at KB Securities. “South Korea’s manufacturing has remained unscathed from the pandemic, and now as developed economies themselves restart production, South Korea’s getting a boost.”

Last quarter’s export recovery fueled the biggest increase in facilities investment since 2012, led by spending on machinery and transportation equipment, the BOK said. Manufacturing grew 7.6 per cent, the most since 2009.

Consumer spending is also likely to improve after slipping last quarter. A late summer resurgence of the virus in South Korea that led to tighter social distancing rules has eased in recent weeks and President Moon Jae-in has said the country should seize the chance to restart its recovery.

Despite a second-half recovery, private sector analysts see GDP shrinking for the full-year for the first time since the late 1990s Asian financial crisis. The BOK this month pointed to signs of economic green shoots while holding its key interest rate at a record low.