Macroscope | South Korea’s economic slump a bad sign for Asian economies dependent on exports to China
- A weakened Korean won failed to stimulate its exports, meaning China’s recent growth is not in the sectors that need them, and that’s bad for Beijing’s other trading partners
South Korea’s economy shrank in the first quarter of 2019. That is a headache for policymakers in Seoul, but it might also have a wider significance. While Hong Kong itself might be sheltered to some degree, there may be troubled times ahead for other open economies in Asia whose fortunes are closely tied to China.
Markets were surprised by data released last Thursday that showed the South Korean economy had shrunk a seasonally adjusted 0.3 per cent in the first three months of this year in comparison with the final quarter of 2018. That was its largest contraction since late 2008, during the global financial crisis.
The median forecast among economists polled by Reuters had been for an expansion of 0.3 per cent and, tellingly, not one of the respondents had expected the South Korean economy to shrink.
With exports a key driver of South Korea’s economy, it would be rational to expect some negative knock-on impact due to the China-US trade war. Indeed, South Korean exports dropped by 2.6 per cent in the first quarter following a 1.5 per cent fall in the last quarter of 2018. A fall in South Korea’s shipments to China, its biggest trading partner, has been a key factor.