Green Book "COVID-19 May Cause Greater Economic Impact Than MERS and SARS" (Comprehensive)

Scale Varies Depending on Spread and Duration

Exports and Construction Investment Improve... "Signs of Economic Recovery"

Hong Min-seok, Director of Economic Analysis at the Ministry of Economy and Finance, is holding a background briefing on the "February Recent Economic Trends" on the morning of the 14th at the Government Sejong Complex.
[Image source=Yonhap News]

[Sejong=Asia Economy Reporters Kim Hyunjung, Joo Sangdon, Kim Eunbyul] The government forecasted that the shock caused by the novel coronavirus infection (COVID-19) could appear faster and stronger than during Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). However, it noted that this could vary depending on the extent and duration of COVID-19’s spread, and did not provide specific damage estimates or forecasts.

On the 14th, the Ministry of Economy and Finance stated in the 'Recent Economic Trends February Issue (Green Book)' that "depending on the extent and duration of the recent COVID-19 outbreak, the growth of the global economy including China and the recovery trend of our economy may be constrained."

Hong Minseok, head of the Economic Analysis Division at the Ministry of Economy and Finance, explained, "When comparing this COVID-19 outbreak with MERS and SARS, the human, material, and economic exchanges between the affected countries and South Korea are incomparable. Also, with the development of social media, the shock caused by infectious diseases is now reflected more quickly in economic indicators."

During the 2015 MERS outbreak, Saudi Arabia accounted for only 0.1% of total tourists, but now China accounts for 34.4%. Additionally, the export share differs greatly, with Saudi Arabia and China accounting for 1.8% and 25%, respectively. Compared to the SARS outbreak, South Korea’s export share to China has increased by more than 10 percentage points from 14.6%.

Hong said, "The first domestic confirmed case occurred on January 20, and much of the period afterward was the Lunar New Year holiday, so January indicators were not significantly affected. Currently, we are monitoring about 30 indicators daily, including credit card approval amounts, department stores and marts, tourist numbers, railway and highway traffic volumes, amusement parks, and movie theater attendance."

However, the government gave a more positive assessment of the economic situation as of the end of January. After excluding the term 'sluggish' for four consecutive months following seven months from the April to October issues last year, the diagnosis of an 'adjustment phase' mentioned only for exports and construction investment was changed to an overall 'improvement' and 'recovery' level. Although total export value last month decreased by 6.1% year-on-year, the average daily export excluding working days increased by 4.8%. This is the first increase in average daily export value in 14 months. However, the export price index in January fell by 0.8% to 96.59 compared to the previous month (97.41). The average won-dollar exchange rate last month was 1,164.28 won, down 1.0% from the previous month (1,175.84 won), leading to a decline in export prices centered on coal and petroleum products, computers, and electronic optical devices. In particular, the DRAM export price also fell (-2.5%) due to the influence of the exchange rate.

Investment indicators also showed limited but improving trends. In the fourth quarter of last year, facility investment (GDP preliminary estimate) decreased by 4.2% year-on-year, but construction investment increased by 0.5%. Construction investment had decreased by 3.7% in the third quarter. Employment increased mainly among those aged 60 and over, expanding from 516,000 in December last year to 568,000 in January this year. Consumer prices in January rose 1.5% year-on-year due to a turnaround in agricultural, livestock, and fishery product prices and an increase in petroleum prices, while core inflation, which shows the underlying trend of prices, rose 0.9%.

Hong said, "The impact on our economy will vary depending on the end time of the outbreak. As with MERS, when infectious diseases end, indicators that had slowed down may rebound sharply all at once."