SEOUL, April 23 (UPI) -- South Korea's economy contracted by 1.4 percent in the first quarter of 2020 compared to the previous quarter as it was battered by a drop in consumer spending, manufacturing and exports due to the COVID-19 pandemic, the Bank of Korea announced Thursday,
The contraction was the sharpest since the global financial crisis of 2008 when the economy shrank by 3.3 percent in the final quarter of that year.
South Korea was the first country after China to see widespread transmission of the coronavirus, with a sharp rise in cases tied to a secretive religious sect in the southeastern city of Daegu during the latter half of February and early March.
With early and widespread testing and tracing, South Korea managed to dramatically flatten the curve of new infections without having to resort to the large-scale lockdowns seen in Europe and the United States. Daily reported cases of COVID-19 have dropped to single digits in recent days.
However, activity in Asia's fourth-largest economy was still hit hard as people stayed home and thousands of businesses and shops closed under social distancing measures and work-from-home guidelines.
Private consumption plunged by 6.4 percent quarter-on-quarter, with expenditures on both goods and services drying up.
Exports shrank by 2 percent despite a rise in shipments of semiconductors, a mainstay of South Korea's economy, as sectors such as motor vehicles, machinery and chemical products all fell, the BOK said in a statement.
A rise in semiconductors also didn't prevent manufacturing from falling by 1.8 percent, due to decreases in transportation equipment and basic metals.
Services decreased by 2 percent, driven by declines in areas such as wholesale and retail trade, accommodation and food services, transportation and cultural services, the BOK said.
Finance minister Hong Nam-ki said Thursday that a recovery in investments and exports since the end of last year has helped cushion the economic impact of the coronavirus pandemic but warned that a global recession could deliver a bigger blow starting in the second quarter.
"The recovery in investment and exports, which has been going on since the end of last year, has somewhat dampened the slowdown in first-quarter growth," Hong said at a crisis management meeting with other ministers. "But from the second quarter onward, the global economic downturn increases the risk of a shock to the real economy and employment market."
The International Monetary Fund forecasts South Korea's economy to contract by 1.2 percent in 2020.
Earlier this week, ratings agency Standard and Poor's kept South Korea's credit rating at "AA" despite the COVID-19 pandemic. The agency is projecting that the South Korean economy will shrink by 1.5 percent this year but will rebound to 5 percent growth in 2021.
"Though Korea has been one of the worst-hit countries in Asia by COVID-19, we envisage its economic fundamentals to be little changed by these temporary events," S&P said in a statement. "As the outbreak recedes, we believe strength will return to economic activity."
The rebound will be "supported by the release of pent-up consumption built during the pandemic and the government's stimulus measures," the agency added.
Health officials announced over the weekend that South Korea would begin to ease social distancing measures as the number of new infections continues to fall. Places of worship and venues such as nightclubs have been allowed to reopen under disinfection guidelines while professional sports such as the Korean baseball league can resume without an audience.
The government will further loosen restrictions after its current policy of extended distancing expires on May 5 in an effort to start moving toward greater economic and social activity.
"Assuming we maintain our current level of stable management, we will transition from May 6 to a stage of 'daily quarantine' in which we practice social distancing while carrying on with our daily lives," Prime Minister Chung Sye-kyun said Sunday.