South Korea has entered a technical recession in the second quarter with the gross domestic product (GDP) expected to finish this month in a contraction of more than 2 percent against three month earlier, the Bank of Korea officially admitted on Tuesday.

“From data as of May 28, we expect the growth rate for first half to be negative 0.5 percent, which would put the second-quarter GDP at mid negative 2 percent range,” said Park Yang-soo, head of the data bureau at the central bank.

An economy contracting for two consecutive quarters technically enters a recession.

The BOK has revised the GDP growth rate for the first quarter at negative 1.3 percent against the previous quarter from minus 1.4 percent in preliminary data in its gross income data for the first quarter.

On year, the GDP in the first quarter was up 1.4 percent, revised up from 1.3 percent.

By sector, actual quarter-to-quarter figures for the January-March period improved 0.8 percentage points for manufacturing, 0.6 percentage points for exports, and 0.5 percentage points for imports from preliminary ones.

Service industry, however, contracted 2.4 percent in the cited period, 0.4 percentage points lower than the preliminary announcement in April and the lowest since 6.2 percent contraction in the first quarter of 1998.

Private spending, meanwhile, decreased 6.5 percent in the first quarter as consumption on goods and services both decreased. It is the largest contraction since 13.8 percent in the first quarter of 1998.

Construction investment expanded 0.5 percent in the first quarter over the previous three months, facility investment 0.2 percent and knowledge re-product investment 0.8 percent.

Exports dropped 1.4 percent mainly due to sluggish demand for automobiles and machinery and imports 3.6 percent.

Korea’s real gross national income (GNI) per capita decreased 0.8 percent in the first quarter from the previous one, reaching above 1.3 percent economic contraction amid improvement in trading conditions.

GNI is the total domestic and foreign income of all residents that includes wage, interest, and dividend.

Per capita GNI reached $32,115 as of end of 2019, down 4.3 percent on year in the biggest fall since 2009 in the aftermath of financial crisis. Under the BOK’s worst-scenario GDP outlook that puts 1.8 percent in negative growth for this year and weakening in the Korean won, Korea’s per capita income could fall below $30,000 threshold by the end of the year.

By Lee Eun-joo

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