SEOUL, July 23 (UPI) -- South Korea's economy contracted for the second quarter in a row, falling 3.3% from the previous quarter in its sharpest decline in over two decades as the global COVID-19 pandemic took a heavy toll on exports, according to advance data from the Bank of Korea.
The contraction marked the second quarter in a row of negative growth for South Korea, putting the country in a technical recession for the first time since 2003. In the first quarter of the year, the economy declined by 1.4%.
Exports, which account for nearly 40% of the South Korean economy, plummeted by 16.6% from the previous quarter, the BOK announced Thursday, citing weak demand for motor vehicles and petrochemical products. It was the biggest drop in the sector since 1963.
Year-on-year, gross domestic product fell by 2.9% in the second quarter.
Finance minister Hong Nam-Ki said during a policy meeting Thursday that the contraction exceeded projections that had been in the low to mid 2% range due to "a larger than expected foreign sector shock."
"[T]he impact of the global economic downturn was more profound than expected as the global pandemic spread," Hong said, noting falling economic activity and shutdowns of overseas production facilities in countries such as Vietnam and India.
However, Hong said that "a significant rebound is possible" in the third quarter, driven by government stimulus efforts along with increased overseas production and resumption of hospital and school activities. He said the rebound could be on a "similar track" as China, which has managed to avoid sliding into a recession.
Hong said that South Korea's economy is "relatively strong" compared to major developed countries, pointing to growing domestic demand.
Last week, Singapore announced that it had entered a recession, with second-quarter growth plunging by 41.2% quarter-on-quarter. Japan is also set to declare a recession, the Asahi Shimbun reported Thursday, ending a 71-month economic expansion streak.
Domestic private consumption in South Korea grew by 1.4% quarter-on-quarter, driven in part by government cash stimulus that boosted spending on household items. The central bank has also slashed its benchmark interest rate twice this year, to a current record low of 0.5%, to help increase consumption.
The government has pledged $225 billion in stimulus this year to help prop up the economy and minimize the impact of the coronavirus, and last week President Moon Jae-in delivered details of an ambitious "Korean New Deal" of economic, environmental and social reforms.
In May, the Bank of Korea forecast that the economy would shrink by 0.2% in 2020. However, a statement issued by the BOK last week said GDP growth would likely be lower than that projection, noting that the spread of the coronavirus was accelerating around the world.
"The path forward for the economy will depend on the evolution of the pandemic," the statement said. "The downside risks include a prolonged spread of the virus, a deepening of the US-China trade dispute and a delay in the semiconductor industry's recovery."
The International Monetary Fund recently revised its GDP forecast for South Korea downward to a decline of 2.1% for the year.