South Korea Sees Worst Decline in GDP Since 2008
South Korea is Asia’s fourth largest economy behind China, Japan and India. Approximately half of the nations GDP is derived from its exports. The economy contracted by 0.3% in Q1, confounding analysts’ expectations of a growth of 0.3%. The decline is the largest fall in GDP since the Global Financial Crisis and comes on the back of five straight months of declining exports. The decline in South Korea’s exports is, in part at least, fallout from the trade tensions between the USA and China, but also reflects the slowing of the global economy in 2019 (of course, the two are linked).
Demand from China for Korean exports has softened and global demand for semi-conductors, a major South Korean export, has weakened. The Q1 data led to a 0.6% fall in early trading on the main South Korean stock market and the currency, the Won, fell back to its weakest level against the US Dollar since March 2017.
In the wake of the Q1 result, the Bank of Korea has trimmed its full year growth projection to 2.5% and the government has announced a further spending package of $5.9 billion which it hopes will create a further 73000 jobs and hike GDP by 0.1%. In addition to weaker global demand for semi-conductors, there has been a fall in price and demand for memory chips, a key South Korean export.
Unemployment in South Korea is currently at 3.8%, below the level many economists would consider to be full employment. However, the long-term average unemployment level is lower than this at 3.65% ((1999 to date). Inflation in the country is also low, currently standing at just 0.4% which is well below the central bank’s target of 2%. Inflation has ranged from a low of 0.2% (February 1999) to a high of 32.5% (October 1980) with an average level of 7.28% (1966 to 2019).