South Korea’s economy shrank 1 percent in 2020 from the previous year, due to blows dealt by the COVID-19 pandemic, marking its first contraction since it was hit by the devastating 1997 Asian financial crisis more than two decades ago, the central bank said Tuesday.

The 1 percent contraction in the country’s gross domestic product was slightly better than the Bank of Korea’s earlier projection of minus 1.1 percent in November, its advanced data showed. Yet, it was one of its worst performances since a 5.1 percent contraction in 1998.

GDP shrank 1.3 percent on-quarter in the first quarter then faced a worse contraction of minus 3.2 percent in the second quarter. It then rebounded to a 2.1 percent growth in the third quarter, buoyed by improved exports and fell to a 1.1 percent growth in the fourth quarter.

The BOK noted that the annual GDP contraction of 1 percent was “smaller than that of other key economies.”

“A key factor is that our manufacturing sector accounts for a relatively large portion of our economy. If tourism and services accounted for the majority, the blow from the coronavirus would have been harsher,” Park Yang-su, head of the economics statistics department at the central bank said in a press briefing.

The nation’s strong quarantine system was another factor behind the latest GDP figure, Park noted.

Despite the optimistic signs, Park warned that the economy has yet to return to its normal growth level, saying that consumer spending has “noticeably contracted,” and is continuing to shrink. Policymakers must be wary of the social classes severely hit by the third wave of the virus here, in implementing measures, he said.

The third wave, which began in late November last year, posed greater challenges to the nation, compared with the two previous waves, with the number of infections hovering above 1,000 for days. Domestic consumption shrank due to stricter social restriction imposed by the government throughout the period.

For this year, South Korea is anticipated to grow 3 percent, the BOK said in its latest data, optimistic compared with its previous projection of a 2.8 percent growth.

Exports climbed 5.2 percent on-quarter in the last three months of 2020, but private consumption contracted 1.7 percent, in the same period.

On his Facebook page, Finance Minister and Deputy Prime Minister Hong Nam-ki cited the four extra budgets allocated in 2020 worth a combined 66 trillion won ($59.4 billion), as cushions that stopped the economy from further deterioration.

“The budgets cushioned the economic contraction and lived up to its role when citizens were suffering in the time of an economic crisis,” Hong said in a message uploaded after the BOK announcement.

“What’s important now is to have confidence on our economic growth, join our strengths and move forward in order to achieve a strong recovery and rebound.”

By Jung Min-kyung (mkjung@heraldcorp.com)