More than two years since the onset of COVID-19, the Korean economy is now on track to recovery, but the pandemic has caused a significant impact on the Korean economy in many aspects including economic output and industrial structure.

First of all, the export-oriented economy suffered a blow from the pandemic due to a sharp decrease in international trade. In 2020, global trade volumes plunged amid a decline in industrial production worldwide, but trade flows recovered at a fast pace in 2021 and now are above pre-pandemic levels. Likewise, Korea’s dependency on external trade dipped in 2020 but rebounded to the pre-pandemic level. The ratio of exports to GDP rose to 40.4% for the first nine months of 2021 compared to 36.1% and 39.3% for the same periods of 2020 and 2019 respectively, according to a report released by the Hyundai Research Institute. The ratio of imports to GDP also fell in 2020 but recovered to 36.5% in 2021. Net exports accounted for 3.9% of GDP during the nine-month period of 2021, up 1.3%p from two years earlier.

(Source: Hyundai Research Institute)

COVID-19 also undermined consumption, with its share out of GDP decreasing from 65.9% in Q1 - Q3 2019 to 64.8% in Q1 – Q3 2021. In particular, the effect of COVID-19 on private consumption was striking as the pandemic largely affected consumer behavior, leading people to avoid close contact with others to prevent infection. There was a sharp decline in non-essential spending in the retail, tourism, hospitality, and recreational industries. However, the pandemic resulted in high levels of government spending, with much of public expenditure spent on public health services and support for businesses and individuals. The share of public spending increased to 28.5% of total consumption from 26.1% over the same period.   

Another noteworthy change in the wake of the COVID-19 outbreak was a growth in ICT value added, which is the difference between the Information and Communication Technology (ICT) sector gross output and intermediate consumption. The ICT sector consists of manufacturing of computers, electronic and optical products, and the information and communication industries. In 2021, ICT value added accounted for 11.3% in Q1 – Q3 2021 vs 10.9% in Q1 – Q3 2019. In particular, ICT services have been driving the overall growth of ICT value added.

(Source: Hyundai Research Institute)

The ICT sector has also been a primary driver of export growth in the manufacturing industry. The share of ICT in total exports jumped to 29.5% in the first nine months of 2021 from 26.6% in the same period of 2019. As COVID-19 has accelerated digitalization, global trade in ICT goods increased drastically against the backdrop of the lockdown measures introduced in many economies, which resulted in a greater reliance on digital technologies and boosted demand for semicondutors, computers, and peripheral equipment.

In contrast, the service industry suffered severe demand shocks during the coronavirus crisis. Although there was little change in the ratio of the service industry’s value added to GDP, the pandemic had disproportionately huge impacts on certain service sectors, such as food and beverages, accommodation, retail, and hospitality because they traditionally depend on face-to-face contact with customers. On the other hand, there are some service sectors that enjoyed gains due to changes in lifestyles and demand growth in the wake of the coronavirus pandemic, such as ICT, finance and real estate services.