South Korea has reported its sharpest quarterly gross domestic product rise in a decade as Seoul reaps the rewards from its swift response to the coronavirus pandemic and robust tech exports.

Asia’s fourth-biggest economy and a bellwether for regional trade, is now poised for a faster return to growth than economists and analysts had expected.

In the three months to the end of September, South Korea’s economy grew 1.9 per cent from the second quarter. That marked a rebound from two consecutive contractions in the first six months of the year and the steepest quarterly increase since early 2010 in the wake of the global financial crisis, Bank of Korea preliminary data showed on Tuesday.

On a year-on-year basis, third-quarter GDP shrunk 1.3 per cent, beating market expectations for a 1.8 per cent contraction and reflecting that the pace of decline had slowed from a 2.7 per cent fall in the previous three months.

“While uncertainty surrounding the global pandemic continues to cloud the growth outlook, the combination of effective policy responses and a favourable export structure places South Korea’s economy in a good position to recover faster than most,” said ANZ analysts Krystal Tan and Sanjay Mathur.

Despite global demand being battered in the first half of the year and a weak economic outlook hanging over many big economies amid a second wave of coronavirus infections, South Korean exports have already swung back into positive territory.

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The country’s leading tech manufacturers, including Samsung, LG and SK, have all benefited from robust demand this year. This has stemmed from greater demand for connectivity during the pandemic, China’s strong economic recovery, as well as a surge in demand from Huawei ahead of the latest US sanctions against the Shenzhen-based telecoms company.

“As things stand, the economy looks to be on track to return to its pre-pandemic level in 2021 and possibly as soon as [the first half of next year],” the ANZ analysts said.

The government in Seoul has won international praise for its swift deployment of mass testing and high-tech contact tracing and tough quarantine rules to combat the virus.

The measures have been credited for South Korea’s avoidance of lengthy city or nationwide lockdowns that continue to cripple many countries. This has meant many businesses have been able to stay open, which, coupled with unprecedented stimulus measures including cash handouts, has softened the blow to domestic consumption.

Alex Holmes, an emerging markets economist with Capital Economics, was confident that the recovery would continue as South Korea’s recent second wave of resurgent coronavirus transmission fades.

“Overall, the economy is likely to contract by around 1 per cent in 2020. While this would be the worst performance since 1998, it would still make Korea one of the best-performing economies this year,” Mr Holmes said.

He added that “recent jumps in imports of manufacturing equipment suggest firms are expanding capacity”.

But Nomura analysts warned that the recovery remained “far from complete”.

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“While the government has eased social distancing measures and encouraged people to resume their normal activity, voluntary social distancing continues, which suggests the pick-up in services consumption will remain limited even in [the fourth quarter],” the bank said. 

Via Financial Times