South Korea Falls Into Recession After 3.2% GDP Drop

South Korea’s gross domestic product declined a seasonally adjusted 3.2 percent on quarter in the second quarter of 2020, the Bank of Korea said on Tuesday.

That follows the 1.3 percent contraction in the first quarter, putting South Korea firmly into a recession.

On a yearly basis, GDP fell 2.7 percent after advancing 1.4 percent in the three months prior.

Real gross national income sank 2.2 percent on quarter and 1.7 percent on year. That follows the 0.8 percent quarterly drop and the flat annual reading in the previous three months.

On the production side, manufacturing fell 8.9 percent on quarter, mainly in transportation equipment and computer, electronic and optical products. Construction declined 0.3 percent, owing to a decrease in building construction. Services contracted 0.9 percent, with decreases in wholesale and retail trade, accommodation and food services, transportation and storage and cultural and other services.

On the expenditure side, private consumption was up 1.5 percent, as expenditures on durable goods (motor vehicles, home appliances) increased. Government consumption rose 1.1 percent, mainly due to increased expenditures on goods. Construction investment contracted 1.5 percent, as building construction decreased. Facilities investment declined 0.5 percent due to a decrease in transportation equipment, despite an increase in machinery. Exports fell 16.1 percent, due to decreases in motor vehicles and mobile phones. Imports decreased 6.7 percent, owing to reduced imports of crude oil.

Nominal GNI dropped 1.2 percent in the second quarter of 2020 relative to the quarter before, decreasing more than nominal GDP (-1.0 percent) as net factor income from the rest of the world fell. Real GNI decreased 2.2 percent compared to the previous quarter, falling less than real GDP (-3.2 percent) as the terms of trade improved. The GDP deflator rose 1.2 percent year on year.

The gross saving ratio (gross saving/gross national disposable income) stood at 34.5 percent, 1.6 percentage points lower than in the previous quarter, as the final consumption expenditure increased (+1.3 percent) whereas nominal gross national disposable income decreased (-1.2 percent). The gross domestic investment ratio (gross capital formation/GNDI) was 32.7 percent, 1.5 percentage points higher than in the previous quarter, due to an increase in intellectual property products.

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