S. Korea’s economy inches towards first recession in three years, says data

Data released on Wednesday (Feb 1) indicated that South Korea’s economy has advanced closer to its first recession in three years in January as a result of a record-high trade deficit, largely driven by falling exports as a result of extended holidays and a slowing global economy.

The fourth-largest economy in Asia, which is largely dependent on trade for growth, contracted by 0.4 per cent in the third quarter of 2018 and is now in danger of entering its first recession since the middle of 2020, during the height of the COVID-19 pandemic.

Data from the commerce ministry indicated that exports plummeted 16.6 per cent in January compared to the same month last year, exceeding the 11.3 per cent reduction forecast in a Reuters poll and marking the exports’ steepest dip since May 2020. imports decreased by 2.6 per cent when compared to the previous year. As a result, the nation reported a record-breaking $12.69 billion trade imbalance for any month.

Two consecutive quarters of declining GDP raise the possibility of a recession, which also highlights market speculation that the central bank’s push to raise interest rates since late 2021 has peaked.

A 44.5 per cent reduction in semiconductor exports and an alarming 31.4 per cent decline in sales to China were attributed for the weak trade performance in January, according to figures from the commerce ministry.

Both rates of reduction were the lowest since the 2008–2009 global financial crisis.

After recording a 6.1 per cent growth in 2022, the government predicted that exports would drop by 4.5 per cent this year. The commerce ministry has pledged to take preventive steps to stop the loss. 

Additionally, Asia’s factory activity decreased in January as a result of the slowing development in the US and Europe, despite China’s COVID reopening, polls revealed on Wednesday (Feb 1 ), highlighting the fragility of the region’s economic recovery.

After Beijing lifted tight COVID restrictions late last year, factory activity in China declined at a slower rate in January, according to a poll of the private sector.

(With inputs from agencies)