South Korea just reported that its worst economic contraction since the 2008 financial crisis as the disruptions in trade and commerce continue in Asia and around the world. The country's export-reliant economy has particularly been hard hit as the coronavirus pandemic due to its adverse effect on global consumer demand.
According to an estimate released by the Bank of Korea, the country's economy had contracted by 1.4 percent during the first quarter of the year. The estimates made by the central bank for its January to March period was slightly better than initial analysts' estimates but was still the worst performance ever recorded in more than a decade.
The rate of economic growth recorded for the period was slower by more than 2.3 percent when compared to the fourth quarter last year. The decline was corroborated by the recorded decline in the country's consumer spending and its exports. For the latest quarter, South Korea reported a 6.4 percent decline in consumer spending and a 2 percent decrease in overall exports.
Like its neighbors, South Korea was hit by the coronavirus pandemic earlier than other countries. At one point, the country had the largest number of confirmed cases outside of mainland China. Thanks to its quick response, the rate of daily infections has died down. As of the moment, the country has more than 10,000 confirmed cases with only 238 fatalities.
South Korea responded to the crisis by launching an ambitious mass public testing, which allowed it to properly track and isolate infected citizens. Experts had stated that the country's early testing effort was the main contributor to its successful handling of the crisis.
Despite its success in controlling the spread of the pandemic, the country's economy was still hit hard. According to economists at Capital Economics, the widespread lockdowns and shelter-at-home orders imposed by governments around the world have greatly reduced consumer demand. This is particularly detrimental to export-dependent countries such as South Korea.
Trade data showed that South Korea's exports for the first 20 days of April had dropped by nearly 27 percent when compared to the same period last year. That number is expected to drop even further as the pandemic spreads to the rest of the world.
Growth prospects for the upcoming quarters also look bleak. Capital Economics estimates that South Korea's economy could contract by as much as 6 percent during the second quarter with a total expected annual contraction of about 3 percent.
