If this trend continues, Japan will surpass Korea in terms of real economic growth rate this year, for the first time in 25 years since 1998 during the Asian financial crisis.

Japan’s Cabinet Office announced on Wednesday that the country’s GDP increased 0.4 percent year-on-year during the first quarter of this year. Its annual growth rate, which the International Monetary Fund (IMF) initially projected at 1.3 percent, is now expected to reach 1.6 percent based on its recent performance.

This stands in stark contrast to Korea, which is struggling to achieve a growth rate of 1.5 percent this year. Global credit ratings agency S&P cut the 2023 economic growth estimate for Korea to 1.1 percent from a previous outlook of 1.3 percent, while the IMF reduced its economic outlook to 1.5 percent from 1.7 percent.

Market watchers attributed the contrasting performance to the different economic structures of the two countries. Japan’s growth momentum has been driven by a surge in domestic demand, which has had a significant impact on its economy following the end of the pandemic.

“Japan’s largest trading partner is China, just like the case of Korea. While China’s reopening had a lukewarm impact, the bigger significance of domestic demand played a crucial role in bolstering Japanese markets compared to Korea,” said Ryu Jin-lee, a researcher at Hi Investment & Securities.

Ryu explained that Japan has a low degree of external dependence, with domestic private consumption accounting for 54 percent of its GDP.

Unlike Japan, Korea relies heavily on external trade for its economy. Korea is currently struggling economically due to persistent weak demand in China for its key export products such as semiconductors and petrochemicals. Korea’s exports to China declined by 26.5 percent year-on-year, marking the largest decrease among exporting countries.

Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, noted that China’s reopening is focused primarily on consumption rather than manufacturing at this moment.

The stagnation in the number of foreign visitors to Korea, coupled with a notable surge in the number of Korean travelers heading abroad this year, is another factor that poses challenges to Korea’s growth.

The number of tourists visiting Japan reached 1.8 million in March, recovering to 66 percent of the pre-pandemic level. “A significant increase in the number of tourists visiting Japan is another factor helping it sustain domestic demand,” Ryu explained.

However, some economists say Korea shouldn’t be too pessimistic about its economy.

“Japan has performed well this quarter. However, the country is making improvements in several indicators where it had previously marked negative growths. Hence, it isn’t right to categorize Japan as a country doing exceptionally well or Korea as performing poorly, when considering the different economic circumstances of the two countries,” said Kong Dong-rak, an economist at Daishin Securities.

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Analysts said Asia’s fourth-largest economy may slow down further in the medium term, although it may still manage to reach its annual growth target for 2022.

They noted both industrial output and facility investments are gauges of exports, while retail sales is a gauge of spending, although not of spending on services.

Exports and consumption have underpinned growth in the first half, and the July readings suggest the two economic barometers face downward pressure stemming from global recession fears, soaring inflation and interest rate hikes.

“I would say July performances of industrial output, retail sales and facility investments indicate that the nation’s economy can get worse over time,” said Park Chong-hoon, the head of economic research at Standard Chartered (SC) Bank Korea.

Industrial output inched down 0.1 percent in July from the previous month, compared with a 0.8 percent month-on-month increase in June, according to Statistics Korea.

Retail sales fell 0.3 percent in July after posting a 1 percent decline in the previous month, the fifth consecutive month of retreats, which is the first time the government has recorded this phenomenon in the time it has been compiling related data, since 1995.

Facility investments retreated 3.2 percent month-on-month in July, compared with a 4 percent increase the previous month.

July marked the first time since April that industrial output, consumption and facility investments all posted month-on-month falls together.

“Industries in general can be said to be producing and investing less because exports have been losing steam recently,” Park said, referring to a 3.1 percent decline in exports in the second quarter after marking a 3.6 percent increase in the first quarter.

The fall in exports was largely attributed to the protracted war between Russia and Ukraine and China’s extended COVID-19 lockdown measures.

In the second quarter, private spending rose 3 percent, covering up exports as consumption of semi-durable goods and services, such as travel and dining out, grew fast over eased pandemic restrictions.

Nevertheless, it remains uncertain whether overall consumption can get on an upward trajectory, the SC Bank Korea economist analyzed. “Rising inflation and interest rate are significantly reducing disposable income,” he said.

Inflation remains at a nearly 24-year high of 6.3 percent as of July, while the benchmark interest rate was hiked for the fourth consecutive time to mark 2.5 percent this month, making debt repayments tougher for households.

Joo Won, deputy director of Hyundai Research Institute, said the joint decline of industrial output, retail sales and facility investments may occur again and that they may eat into next year’s economic growth.

“The country may reach its growth target for this year, but hitting the target will be tricky as time passes as risks associated with the Ukraine crisis, inflation and the base rate are not likely go away soon,” he said.

The country’s growth outlook has been revised down over the months while inflation forecast has been revised up.

The latest forecast was from the Bank of Korea (BOK), which estimated the growth outlook for 2022 at 2.6 percent and annual inflation at 5.2 percent.

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China will keep its macro policies consistent, stable, and sustainable in 2021 to push forward steady economic recovery and high-quality development, according to a statement released Friday on the annual Central Economic Work Conference.

The meeting, held in Beijing from December 16 to 18, charted a course for the economy in 2021. Chinese President Xi Jinping attended the meeting and delivered a speech, reviewing the country’s economic work in 2020, analyzing the current situation, and arranging the economic work for the next year.

According to the statement, China will continue to implement proactive fiscal policy and prudent monetary policy, amid efforts to maintain necessary support for economic recovery.

The country will appropriately manage the tempo and strength of its macro-control and implement targeted and effective macro policies, the statement said.

Noting the challenging global economic situation, the statement said the country will adopt a fiscal policy in 2021 that offers stronger financial guarantees to major national strategies, promotes science and technology innovations, accelerates economic structural adjustment, and adjusts income distribution in a proactive manner.

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The raucous debate between President Trump and former vice president Joe Biden turned into a game of alphabet Tuesday when moderator Chris Wallace asked the two candidates whether the U.S. economy is in a V-shaped or K-shaped recovery from the coronavirus recession?

Trump said it was a V while Biden said looked like a K.

The exchange raised a more basic question: What is a V- or K-shaped recovery anyway?

A V-shaped rebound is when the economy contracts sharply but bounces back just as dramatically. Many economists believed this downturn might well be V-shaped because it was triggered by a pandemic that forced the shutdown of restaurants, shops, movie theaters and other businesses, and decimated the airline and hotel industries by chilling travel. Yet as soon as the outbreak eases and businesses reopen, the economy theoretically can return to its previous output level.

V-shaped recovery

Initially, the recovery did resemble a V. After the U.S. shed 22.1 million jobs in April and May, it recouped 7.5 million in May and June as restaurants and other businesses began reopening in phases.

But job growth slowed to 3.1 million in July and August and a report Friday is projected to show 850,000 payroll gains in September. The totals are expected to dip further in coming months as many restaurants and other outlets operate at limited capacity and many consumers shy away from public gathering spots amid the continuing spread of the virus. The travel industry remains in dire shape. And Congress is deadlocked over a new stimulus package to prop up struggling businesses and unemployed workers.

There’s also long-lasting damage: Failed businesses, and workers who have been permanently laid off.

Gus Faucher, chief economist of PNC Financial Services Group, doesn’t expect the country to recover all the jobs lost in the pandemic until 2023.

“It’s a solid recovery but it’s going to take time to get back to where we were,” Faucher says.

Another way to assess the rebound is by looking at the nation’s gross domestic product – the sum of all goods and services the economy churns out. After plunging at a record 31.4% annual rate in the second quarter, the economy is estimated to have grown about 32% in the third quarter (July-September).

But that gain doesn’t offset the similar-sized loss because the economy was smaller after the big decline. Returning to the nation’s late 2019 GDP level would require a 54% surge in output, says Ian Shepherdson, chief economist of Pantheon Macroeconomics.

How about a ‘U’?

Faucher estimates the economy will reach that benchmark late next year. As a result, what started as a V-shaped recovery is starting to look more like a U – a gradual climb back.

Some economists disagree. Morgan Stanley suggests the U.S. is in a relative V-shaped recovery, estimating it will take 18 months to reclaim its pre-pandemic GDP compared with 30 months in the Great Recession of 2007-09.

K-shaped recovery

A rebound that resembles a K occurs when some parts of the economy bounce back sharply while others stumble. That is happening now and in more than one way.

Some industries – like restaurants, hotels, movie theaters and music venues – may continue to struggle for some time. Others – like grocery stores and technology providers such as Amazon and Zoom — are thriving. Home sales also have come back to pre-crisis levels on historically low mortgage rates and Americans’ desire to move to rural and suburban areas less affected by the pandemic.

Another way to look at the economy’s split personality is by income level. Low-income workers in service industries such as restaurants and retail continue to struggle while professionals who can work from home remain largely unscathed. Wealthy Americans, meanwhile, are benefiting from the stock market’s rally from its pandemic-induced crash earlier this year, as Biden pointed out.

So which is it — V or K?

It’s possible for the recovery to be V- and K-shaped at the same time, Faucher notes, if the strides made by some sectors or workers offset others’ struggles enough to swiftly lift the economy overall.

But that would be a tough balancing act, and many top economists reckon that’s likely not the current scenario as the U.S. continues to claw back from the wreckage of COVID-19.

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