Q1 Growth Rate -1.4%... Lowest in 11 Years and 3 Months

Private Consumption and Service Industry Production Hit by Foreign Exchange Crisis-Level Shock
Government Fiscal Injection Contribution Rises...Private Sector Plummets

[Asia Economy Reporters Eunbyeol Kim and Sehee Jang] As the economic shock caused by the novel coronavirus infection (COVID-19) intensifies, South Korea's economic growth rate fell to -1.4% in the first quarter of this year. This is the lowest growth rate in 11 years and 3 months since the fourth quarter of 2008 (-3.3%) during the global financial crisis.

The Bank of Korea announced on the 23rd that the preliminary statistics for the first quarter's real Gross Domestic Product (GDP) showed a quarter-on-quarter growth rate of -1.4%. The year-on-year growth rate for the first quarter was 1.3%, indicating positive growth, but this is also the lowest figure in 10 and a half years since the third quarter of 2009 (0.9%).

The significant impact on private consumption and service sector production, comparable to the foreign exchange crisis, was a major factor. Private consumption in the first quarter decreased by 6.4% compared to the previous quarter. This decline is the largest since the first quarter of 1998 (-13.8%). Private consumption, which accounts for about half of GDP, usually does not show large quarterly fluctuations. However, in the first quarter, private consumption pulled down the overall real GDP by 3.1 percentage points. Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, stated, "The growth contribution of the domestic demand sector sharply fell from 1.4 percentage points in the previous quarter to -2.0 percentage points," adding, "Among domestic demand items, the growth contribution of final consumption expenditure turned negative, dropping from 0.9 percentage points to -2.9 percentage points."

Looking at the contributions by economic agents, the private sector's contribution turned negative, falling from 0.4 percentage points in the previous quarter to -1.5 percentage points. Although the government sector's contribution rose due to fiscal spending, the private sector's contribution plummeted. Director Park analyzed, "It seems that COVID-19 lowered the private sector's growth contribution by about 2 percentage points."

Other components aside from consumption performed relatively well amid the COVID-19 crisis. Exports decreased by 2.0%, which was a relatively smaller shock compared to private consumption. From the production side, the service sector shrank by 2.0% in the first quarter, marking the largest decline since the first quarter of 1998 (-6.2%) during the foreign exchange crisis. Manufacturing decreased by 1.8% overall, as declines in transportation equipment and primary metal products were offset by growth in the semiconductor sector. Real Gross Domestic Income (GDI) in the first quarter fell by 0.6% quarter-on-quarter. The decline was smaller than that of real GDP due to improved terms of trade.