Ministry of Economy and Finance, September Recent Economic Trends
Economic Shock Inevitable Due to COVID-19 Resurgence
Tourism and Consumption Rapidly Contracting
"However, the Scale of the Shock Needs Further Observation"
[Sejong=Asia Economy Reporter Joo Sang-don] Recently, due to the resurgence of the novel coronavirus infection (COVID-19), the government's economic outlook has turned negative. Last month, the government cautiously expressed optimism about the recent economic situation, stating that "the improvement trend in domestic demand-related indicators continues," but by mid-August, with the COVID-19 resurgence, it emphasized pessimism over optimism by saying "uncertainty is expanding" regarding the economic situation. However, since the COVID-19 resurgence is still ongoing, the government took a cautious stance, saying the extent of the shock "needs to be further observed."
On the 11th, the Ministry of Economy and Finance diagnosed in the September Recent Economic Trends (Green Book) that "uncertainty in the real economy has expanded due to the resurgence of COVID-19 in the metropolitan area and strengthened social distancing measures."
Kim Young-hoon, head of the Economic Analysis Division at the Ministry of Economy and Finance, explained, "The COVID-19 resurgence inevitably has a negative impact on our economy," adding, "This is why the economic outlook was more negative than last month."
This aligns with the government's assessment when it announced the 4th supplementary budget the previous day, stating that "although the economy initially showed signs of recovery and a rebound was expected in the third quarter, the recent COVID-19 resurgence has expanded downside risks centered on domestic demand." Earlier, the Korea Development Institute (KDI), a government-funded research institute, lowered its forecast for South Korea's economic growth rate this year from 0.2% to -1.1% on the 8th.
The impact of the COVID-19 resurgence has not yet been confirmed by official indicators. Among major indicators in the July Industrial Activity Trends, manufacturing production (1.6%), service production (0.3%), and construction investment (1.5%) all increased compared to the previous month. The coincident index and leading index cyclical components also rose by 0.2 points and 0.4 points, respectively. The decrease in employment in August was 274,000, smaller than July's decrease of 277,000. However, these figures reflect the situation before the COVID-19 resurgence.
The impact of the COVID-19 resurgence is first being detected in the tourism and consumption sectors. Kim Yong-beom, 1st Vice Minister of the Ministry of Economy and Finance, expressed concern at a policy review meeting held at the Government Seoul Office, stating, "Tourism consumption, which had been recovering, started to decline again from the third week of August, the period of COVID-19 resurgence, worsening difficulties in the tourism industry," and "In the dining sector, sales are declining mainly in the metropolitan area and major cities where dining establishments are concentrated." In fact, tourism consumption recorded -19.8% in the 5th week of July, then the decline narrowed to -12% in the 2nd week of August, but it widened again to -23.1% in the 3rd week and -34.5% in the 4th week of August. The decline in card sales in the dining sector also narrowed to -0.2% in the 2nd week of August but expanded to -26% in the 4th week.
However, the Ministry of Economy and Finance showed a cautious response regarding the scale of the shock the COVID-19 resurgence will have on the economy. Kim said, "We need to observe whether the adverse effects of the resurgence will be greater than during the initial outbreak," adding, "While thoroughly implementing quarantine measures, we will speedily promote existing policies along with the 4th supplementary budget and the 'Emergency Livelihood and Economic Comprehensive Measures' to strengthen tailored support for affected groups and efforts to bolster the economy."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
