By Eun-Young Jeong

SEOUL -- In any normal year, a 1% contraction in South Korea's economy would be disappointing. In 2020, it is a mark of resilience, as strong exports and success in containing Covid-19 buoyed Asian economies against one of the worst global downturns in modern history.

The drop in gross domestic product, reported by the Bank of Korea on Tuesday, is expected to be one of the smallest among major economies, according to estimates from the Organization for Economic Cooperation and Development.

The relative economic strength is reflected across Asia, where China finished the year with 2.3% growth and Vietnam at 2.9%. Taiwan is expected to report a 1.9% expansion for the year Friday, according to Fitch Solutions.

The Bank of Korea attributed South Korea's relative economic durability during the pandemic to its large manufacturing industry, well-established online shopping base and strong pandemic-response measures.

"The recovery of global demand for our mainstream products like semiconductors in the second half of the year contributed to the economic cushioning," said Park Yang-su, director general at the Bank of Korea's economics statistics department.

The picture is much grimmer in the West, where a recent surge of Covid-19 infections has led to reimposing restrictions on businesses and social activities and the vaccine rollout has been sluggish. While many European manufacturers have learned lessons from the spring lockdowns and managed to keep factories running, consumers and businesses remain cautious, which is weighing on retail spending and investment, according to the European Central Bank.

The World Bank estimates the U.S. and eurozone shrank 3.6% and 7.4%, respectively, last year.

Economists worry that the eurozone economy will enter recession again in the three months through March. In Germany, Europe's largest economy, a closely watched business sentiment indicator this week dropped to its lowest level since July. German shops and restaurants have been shuttered since early November, with no clear end to the restrictions in sight.

South Korea has also seen a resurgence of cases this winter, but numbers are far lower than those in the West and have been dropping in recent weeks. Economists say the country is well positioned for a recovery this year, with exports remaining strong and room to roll out more stimulus measures if necessary.

Asia's economies have been held up by the twin pillars of strict Covid-19 controls and strong exports. Those were aided last year by massive stimulus and income-support programs in the West that fueled demand for goods made in Asia, a phenomenon some economists dubbed the "Zoom boom."

In Taiwan, tight Covid-19 restrictions quickly brought back daily social life and kept factories humming. In the third quarter, Taiwan's growth accelerated 3.3% from the same period a year earlier, following a modest 0.6% contraction in the second quarter. Taiwan's exports grew 4.9% in 2020, Taipei's Ministry of Finance said earlier this month.

Vietnam, which managed to keep new daily cases in the single digits for the majority of the year, never reported an economic dip last year.

"Vietnam and Taiwan did really well in terms of handling the virus early on. They didn't have to install lockdowns for a large part of last year, " said Anwita Basu, head of Asia country risk at Fitch Solutions. "There are pockets of contamination, but on the whole, activity is pretty normal there."

China epitomized the strength of Asian economies last year, with manufacturers quickly pivoting to personal protective equipment and masks as the pandemic came into full swing. The country's share of global exports jumped to 15.4% in November, the most recent month available, from 13.7% at the end of 2019.

China's share of global GDP increased 1.1 percentage points last year, the highest gain in a single year since at least the 1970s, according to Moody's Analytics.

Many European business leaders believe their Chinese counterparts gained a competitive advantage during the second half of 2020, according to a November survey conducted by business services firm Accenture, which polled 4,051 senior executives from 19 industries across 13 countries.

Of the European businesses that responded, 45% said they had lost ground against their Chinese rivals, compared with just 17% in May. Only 16% felt they had become more competitive, down from 40% in May.

The survey also found that executives in Asia expect to return to pre-pandemic levels of profit much sooner than their European or U.S. counterparts.

"There is a growing perception that European business is losing ground to Asia when it comes to competitiveness, reflected in lower confidence in growth and longer expectations for a rebound," said Jean-Marc Ollagnier, Accenture's chief executive for Europe.

South Korea-based manufacturer YoungjinIND Ltd. produces scrubbers, an equipment that purifies harmful gas emitted from semiconductor production. In the spring of 2020, the company had to halt production when orders dried up. This year, the company has orders filled up until March, as investments flow back into the semiconductor industry, according to Park Jong-jin, the company's planning team head.

"We've well recovered from the impact of the pandemic," said Mr. Park, adding how the company is having difficulty meeting orders due to the government's pre-pandemic cap on weekly work hours.

For the whole year, South Korea's exports declined 5.4%, but they grew at the fastest pace in more than two years in December at 12.6% from the previous year.

Economists say they expect several economies in the region to continue benefiting from strong exports this year, but add that export-driven rebounds have their limits, especially in highly automated sectors where rising manufacturing activity doesn't necessarily lead to job creation.

"The export model only gets you so far. It creates unbalanced growth," said Shaun Roache, an economist at S&P Global in Singapore. "It's not a sustainable strategy."

In South Korea, the gains in trade haven't translated into boosts in domestic consumption or jobs. In December, the country recorded the sharpest yearly drop in the number of people employed since 1999, with 628,000 fewer jobs than the same month the previous year. Private consumption slipped 5% in 2020, dropping more than any other year since 1998.

China also experienced a disconnect between its exports boom and sluggish domestic consumption. While China's retail sales returned to pre-pandemic levels in August, it slipped 3.9% for the full year of 2020 from 2019.

Still, economists say trade will continue to fuel Asia's economy this year as demand for electronic components remains strong as 5G and electric vehicle trends pick up.

"Demand is really much stronger, and it's not just from the pandemic related Zoom boom," said Rory Green, an economist at research firm TS Lombard.

--Paul Hannon and Tom Fairless contributed to this article.

Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com

(END) Dow Jones Newswires

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