Biggest Export Jump Since 1986 Fuels Korea Recession Rebound

  • 27-Oct-2020
  • Biggest Export Jump Since 1986 Fuels Korea Recession Rebound

South Korea’s fastest exports growth in decades led a stronger-than-expected rebound from its pandemic-triggered recession, signaling a pickup in global trade amid rising virus waves in key markets. 

Gross domestic product increased 1.9% in the three months through September from the prior quarter, the Bank of Korea reported Tuesday. Economists had forecast 1.3% growth, following two quarters of contraction. 

The biggest jump in exports since 1986 led the rebound after a sharp decline in shipments the prior period as demand for memory chips and electronics increased from China and other major economies amid a shift to more work-and-study from home. The gains fueled investment in machines and transportation equipment needed to support manufacturing.

“This speaks to the resilience of a manufacturing powerhouse,” said economist Oh Jae-young at KB Securities. “South Korea’s manufacturing has remained unscathed from the pandemic, and now as developed economies themselves restart production, South Korea’s getting a boost.” 

Korea’s Exports Recovery Continues Behind Holiday-linked Fall

The better-than-expected GDP result may have helped limit the decline of the South Korean won to 0.1% against the dollar Tuesday amid global risk-off sentiment and an attempt by authorities to warn against the currency’s recent rally. The nation’s 10-year bond yield rose 1 basis-point to 1.5%.South Korea is recovering from recession in a stronger position than most developed nations, aided by its exports recovery, stimulus measures and its relatively successful containment of the coronavirus. 

A late summer resurgence of the virus in South Korea that led to tighter social distancing rules has eased. The government resumed the distribution of discount coupons -- halted during the second virus wave -- to encourage spending, and is promoting an annual shopping event in early November to accelerate the recovery. Finance Minister Hong Nam-ki, in a statement Tuesday after the GDP report, said the country has entered a recovery phase thanks to exports to major economies such as China and stronger demand for its tech products. He said the economy might have expanded in the mid- 2% range last quarter if not for the resurgence of the virus in August.

Bank of Korea Holds Key Rate as Virus Grip on Economy Eases 

Exports increased 16% from the previous quarter, but the recovery remains vulnerable to disruptions in the U.S. and Europe, where the epidemic is worsening. Growing U.S.-China tensions and the outcome of the U.S. presidential election also add to uncertainties for South Korea.

“The rising second wave outbreak in developed-market economies is concerning,” economist Rory Green, at research firm TS Lombard said before the GDP announcement. He said South Korea could still benefit from a “Zoom boom” even if a new rounds of lockdowns took place. 

Private sector analysts see GDP shrinking for the full-year for the first time since the late 1990s Asian financial crisis, despite a second-half recovery. Construction investment weighed on the economy heavily in the third quarter, falling 7.8%, while private spending remained sluggish with a 0.1% slide. Compared with the same period last year, the economy shrank 1.3%.



Source:- Bloombergquint.com

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