South Korea’s booming tech exports and optimism over its coronavirus vaccine rollout plans are stoking growth expectations for 2021 after the country beat forecasts in the fourth quarter.
Gross domestic product in Asia’s fourth-biggest economy expanded 1.1 per cent quarter-on-quarter in the final three months of 2020, according to Bank of Korea data. That was down from 2.1 per cent in the third quarter but ahead of most economists’ expectations.
The weaker quarterly growth reflected depressed local spending as the country was caught off guard by a wave of infections in December. The outbreak has sparked South Korea’s highest transmission rates since the onset of the pandemic, but has since been stabilised.
The Bank of Korea in November said it expected GDP growth of 3 per cent in 2021, up from its earlier forecast of 2.8 per cent, on the back of the country’s comparatively strong response to coronavirus.
The fallout from the pandemic last year caused South Korea’s worst year-on-year economic performance and its highest number of job losses since the Asian financial crisis. It also sparked concerns over rising inequality with younger, temporary and casual workers hit hard by the downturn and by soaring house prices.
But South Korea has performed better than most developed countries, according to OECD data. The country's exposure to China, which accounts for about a quarter of South Korean exports, has also helped underpin the return to growth. The outlook for 2021 marks a rebound from a 1 per cent contraction in 2020, and follows a return to growth in the second half.
Beyond surging demand for high-tech exports, Seoul’s initial coronavirus response, which saw the rapid deployment of mass testing and high-tech contact tracing, helped soften the blow from manufacturing supply chain disruption and falling domestic consumption.
A return to monthly double-digit export growth late last year has also continued into January, according to preliminary data, allaying domestic weakness.
Alex Holmes, an economist with Capital Economics, was upbeat on the pace of South Korea’s rebound, noting that on top of strong export demand, government spending was set to rise 9 per cent from already record levels, while further confidence would be drawn from Seoul’s vaccine rollout next month.
“We continue to expect Korea’s economy to grow by around 5 per cent in 2021. This would push GDP to less than 1.5 per cent below its pre-crisis path by the end of the year, among the smallest gaps in the region,” Mr Holmes said.
South Korea plans to vaccinate 70 per cent of its population by September to form herd immunity by November, the Korea Disease Control and Prevention Agency said on Monday.
Health authorities will start inoculating people for free next month, starting with high-risk healthcare workers at hospitals and aged care facilities. People older than 65 will receive jabs in the second quarter.