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South Korea Q4 2020 GDP beats expectations, poised for strong 2021 rebound

Reuters
South Korea Q4 2020 GDP beats expectations, poised for strong 2021 rebound

SNOWFALL. Children play with snow in Seoul, South Korea, January 12, 2021.

Photo by Kim Hong-ji/Reuters

For the entire 2020, South Korea's economy contracts by 1%. It is seen to grow 3% in 2021.

South Korea’s economy grew at a faster-than-expected pace in the 4th quarter as it ended the coronavirus-stricken year solidly poised for a recovery in 2021 thanks to surging exports.

Gross domestic product (GDP) grew a seasonally adjusted 1.1% in the December quarter from the 3rd quarter, the Bank of Korea (BOK) said on Tuesday, January 26, faster than the median estimate of 0.7% in a Reuters poll and following a 2.1% expansion in the September quarter.

That limited the contraction over the whole year to 1%, which is likely to be the smallest GDP slump among the Organization for Economic Co-operation and Development in the year of the pandemic that has killed more than 2 million worldwide.

“Recovery momentum should gather pace from the 2nd quarter onwards, led by strong export prospects as global growth and 5G deployment pick up speed,” said Lloyd Chan, an economist at Oxford Economics.

“A vaccine rollout around February should also stimulate domestic demand, as it would reduce the need for stringent containment measures,” he said.

South Korea’s economy has had a sharp albeit uneven bounce since the 2nd quarter when it suffered its steepest downturn in over a decade.

A recent Reuters poll of 27 economists forecast the economy to grow 3% this year, in line with the BOK’s projections.

December exports rose 12.6% from a year earlier, the biggest expansion in 26 months.

Underlining the optimism, shares of Samsung Electronics have surged about 50% in the 4th quarter alone as it reported a 26% jump in its 4th quarter profit.

But the number of jobs plunged at the sharpest rate in over two decades in December, while private consumption over the 4th quarter declined 1.7% in a sign the recovery is still fragile amid a 3rd wave of the coronavirus now sweeping the country.

Construction investment rose 6.5% from a quarter earlier, marking the best performance since the 4th quarter of 2019.

On a year-on-year basis, the economy shrank 1.4% in the 4th quarter, versus the 1.7% decline forecast in the poll.

Last year, the government pledged fiscal stimulus of about 310 trillion won ($281.4 billion), while the BOK cut interest rates by 75 basis points to 0.5%.

Most analysts expect the BOK to retain its accommodative policy stance in 2021.

“BOK will keep emphasizing financial stability, but that does not mean any unwinding of easier monetary policy adopted after COVID-19,” Lee Seung-hoon, an economist at Meritz Securities, said. – Rappler.com

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