"Economic Indicators Should Not Be Overinterpreted"... Too Early to Judge a Rebound
[Asia Economy Reporter Jang Sehee] The South Korean economy, which experienced consecutive negative growth in the first and second quarters due to the shock of the novel coronavirus infection (COVID-19), rebounded by 1.9% in the third quarter. This was the result of a base effect and a rapid increase in exports. In the fourth quarter, the domestic and international spread of COVID-19 and the resulting exports and consumption are expected to determine the future economic trend.
According to the Bank of Korea on the 1st, the preliminary real gross domestic product (GDP) growth rate for the third quarter of this year was recorded at 1.9% compared to the previous quarter. In particular, exports in the third quarter increased by 15.6% compared to the second quarter, centered on automobiles and semiconductors. This shows a rapid recovery from the shock of the second quarter (-16.6%), which was the worst performance since the fourth quarter of 1963 (-24%).
In this regard, there is an interpretation that it is still too early to judge whether the Korean economy can rebound from the COVID-19 shock. This is because the recovery of private consumption remains weak and exports are heavily influenced by external factors. Recently, COVID-19 related situations have worsened, with signs of re-spread in the United States, Europe, and other regions.
According to the Industrial Activity Trend by Statistics Korea on the 1st, total industrial production (seasonally adjusted, excluding agriculture, forestry, and fisheries) in September increased by 2.3% compared to the previous month. Production in mining and manufacturing (5.4%), manufacturing (5.9%), and services (0.3%) all increased.
Retail sales, which indicate consumption trends, also increased by 1.7%, and facility investment rose by 7.4%. Compared to the same month last year, total industrial production (3.4%), mining and manufacturing (8.0%), and manufacturing (8.3%) all increased simultaneously, and retail sales (4.4%) and facility investment (16.8%) also rose.
The coincident index of economic activity, which represents the current economy, and the leading index of economic activity, which predicts future economic trends, both rose together for four consecutive months.
In this regard, experts point out that attention should be paid not only to exports but also to domestic demand stagnation. If COVID-19 spreads along with the winter flu, it could lead to an uncontrollable situation.
Professor Sung Tae-yoon of the Department of Economics at Yonsei University said, "If a second wave of re-spread occurs in our country, economic indicators will be affected, and significant problems may arise," adding, "Rather than reacting sensitively to economic indicators, it is very important to prevent the re-spread of COVID-19."
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