South Korea’s economy hits pre-pandemic levels

The South Korean economy grew 1.6 percent in the first quarter. Companies are investing – but increasing numbers of infections are preventing consumers from consuming.

Hustle and bustle in the Myeongdong shopping district in Seoul: South Korea has come through the pandemic better than many other countries.

Mith strong growth at the beginning of the year, the South Korean economy has returned to pre-pandemic levels. The gross domestic product grew in the period from January to March by 1.6 percent compared to the previous quarter. According to preliminary information from statisticians, it was a little higher than at the end of 2019, before the coronavirus plunged South Korea into recession.

The export-dependent country grew faster than analysts expected in the first quarter and suggests that the global economy is accelerating. The driving forces were corporate investment and exports. This increased by 1.9 percent in the first quarter, fixed investments by 6.6 percent compared to the previous quarter. Companies are investing in additional capacity to meet increasing demand in the recovering global economy. The strong growth in China, the most important trading partner, plays a major role here.

Finance Minister Hong Nam-ki, who is currently also serving as prime minister, said on Tuesday that the country could achieve growth in the medium to higher range of the 3 percent band this year. The government had previously forecast economic growth of 3.2 percent. The International Monetary Fund is already forecasting 3.6 percent for South Korea.

The weak point of the economy is currently private consumption, which, with an increase of 1.1 percent, could not make up for the minus at the end of 2020. South Korea experienced the third and strongest wave of new infections around the turn of the year. The country is currently heading for the fourth wave of infections. Less than 5 percent of the population has so far been vaccinated against the virus and the government is not planning herd immunity until November.

Pandemic better under control than western countries

So far, South Korea, which in February a year ago still had the second most cases of infection after China, has managed the corona pandemic far better than most Western countries. The country waived draconian lockdowns and took action against the virus with moderate restrictions on public life compared to Germany, which were tightened or relaxed depending on the number of new infections. Like most Asian countries, the country has far fewer cases of infection and Covid deaths. Most recently there were almost 120,000 infections and 1,820 deaths.

Like many other countries, the pandemic plunged South Korea into recession last year. Economic output contracted for the first time since the 1997/98 Asian crisis. With a minus of 1 percent, the country came out of the first pandemic year much better than others.

This was due to the fact that South Korea, with its strong electronics industry, also benefited from the shift in demand during the pandemic. With social distancing in many countries around the world, the demand for televisions increased, but also for computers to allow people to work from home. This gave Samsung Electronics and SK Hynix, two heavyweights in the market for electronic memory modules, a boost in demand.

Economists do not expect this special boom to end quickly, even if with the increasing vaccinations against Corona the economic life in other countries of the world could increasingly normalize in the course of the year.