[Weekly Review] Korean New Deal Fund Invests in Robots and Smart Healthcare... Economic Vitality Remains Weak

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] The government has presented 197 items related to 40 fields including robots, aerospace, games, and smart healthcare as investment targets for policy-type New Deal funds among citizen-participatory New Deal funds, and disclosed the scope criteria for New Deal infrastructure investment. Due to the resurgence of COVID-19, total industrial production returned to a decline after three months, and jobs, especially in the accommodation and food service sectors, sharply decreased. The business sentiment index fell for the first time in five months. Considering the deteriorated conditions, the government is seeking additional support measures for essential workers without blind spots and plans large-scale non-face-to-face sales events to stimulate domestic demand.

◆Korean New Deal Investment Guidelines Released= On the 28th, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki chaired the '4th Korean New Deal Ministerial Meeting and 17th Central Disaster and Safety Countermeasures Headquarters Meeting' held at the Seoul Government Complex in Gwanghwamun, Seoul, and disclosed these investment guidelines. This is a follow-up measure to activate the three types of citizen-participatory New Deal funds announced earlier this month: ▲policy-type New Deal funds ▲New Deal infrastructure funds ▲private New Deal funds.

First, for the investment sectors of policy-type New Deal funds, the government selected 40 fields (excluding overlaps between digital and green New Deals) including robots, energy efficiency improvement, smart farms, eco-friendly consumer goods, immersive content, next-generation semiconductors, object detection, games, aerospace, and smart healthcare. Investments are possible not only in the relevant companies or projects but also in related wholesale and retail, transportation, materials, and parts, covering upstream and downstream businesses.

The investment scope of 'New Deal infrastructure funds,' which invest a certain ratio or more in New Deal sectors, is defined as ▲infrastructure (social overhead capital) that forms the basis for realizing the digital and green economy presented in the Korean New Deal comprehensive plan. Whether the criteria are met will be confirmed by the 'New Deal Infrastructure Review Committee.' Examples of projects include 5G networks, cloud and data centers, green remodeling, and smart water and sewage systems. The government plans to collect industry opinions on the guidelines before launching the funds and proceed through processes such as business briefings and legal amendments.

On the same day, Deputy Prime Minister Hong also announced that policy support measures for essential workers whose working conditions have worsened due to COVID-19, such as healthcare and care workers, delivery drivers, and sanitation workers, are under review. He explained, "We are reviewing measures such as protection from COVID-19 and industrial accident risks, improvement of working conditions, reinforcement of social safety nets, and customized policy support by occupation." Along with this, the schedule for discount events to stimulate domestic demand was also disclosed. Hong said, "We plan to thoroughly establish a quarantine system and promote the 'Korea Sale Festa' online and non-face-to-face for two weeks from November 1 to 15."

◆Total Industrial Production Declines Again After Three Months= Due to the resurgence of COVID-19, total industrial production in August returned to a decline after three months. Manufacturing production decreased by 1% due to reduced exports, and service production turned to a decline after five months.

According to the 'August Industrial Activity Trends' released by Statistics Korea on the 29th, total industrial production (seasonally adjusted, excluding agriculture, forestry, and fisheries) decreased by 0.9% compared to the previous month. This is the first decline in total industrial production compared to the previous month since May (-1.2%) this year. Ahn Hyung-joon, Director of Economic Trend Statistics at Statistics Korea, explained, "Due to the resurgence of COVID-19, industrial trends turned to a decline after three months. Service production decreased for the first time in five months, and manufacturing decreased by 1.0% due to export decline."

Mining and manufacturing production decreased, although electricity and gas production increased, resulting in a 0.7% decrease compared to the previous month. In particular, manufacturing production decreased by 1.0% compared to the previous month due to declines in food products (-7.3%) and automobiles (-4.1%).

Manufacturing shipments increased in semiconductors (4.3%) and communication and broadcasting equipment (18.7%) but decreased in automobiles (-3.9%) and food products (-5.0%), resulting in a 1.4% decrease compared to the previous month. The domestic demand decline was larger. Domestic shipments decreased by 1.8% compared to the previous month, and exports decreased by 0.9%. Meanwhile, manufacturing inventories increased by 2.1% compared to the previous month. The inventory ratio rose by 4.1 percentage points compared to the previous month. The average operating rate of manufacturing was 69.6%, down 0.5 percentage points from the previous month.

Service production increased in finance and insurance (3.7%) and health and social welfare (0.4%) but decreased in accommodation and food services (-7.9%) and wholesale and retail (-1.5%), resulting in a 1.0% decrease compared to the previous month.

The coincident index, which shows the current economic situation, rose by 0.4 points compared to the previous month. The leading index, which forecasts future economic phases, also rose by 0.6 points. This is because the impact of the COVID-19 resurgence was not reflected. Director Ahn said, "The survey was conducted in mid-August and based on that, so the recent resurgence was not reflected. Looking at the cyclical index figures themselves, May this year (leading index 99.4, coincident index 96.8) was the lowest, but since then, there has been a base for recovery, showing improvement."

◆More Than 150,000 Accommodation and Food Service Workers Decreased= Due to the resurgence of COVID-19 in Korea, the number of workers in accommodation and food services decreased by more than 150,000 last month. The number of other workers, including special-type workers such as private tutors, also saw an expanded decrease. According to the August Business Survey results announced by the Ministry of Employment and Labor on the 28th, the total number of workers in domestic businesses with one or more employees was 18,519,000 last month, a decrease of 90,000 (0.9%) compared to the same month last year. The decrease compared to the same month last year was smaller than in July (138,000).

The number of business workers turned negative in March this year as the impact of COVID-19 spread, decreasing by 365,000 in April, but the decline has been shrinking since May. Looking at the increase or decrease in the number of workers by industry and other detailed items, the impact of the COVID-19 resurgence was confirmed in many places. The number of workers in accommodation and food services, which are greatly affected by avoidance of face-to-face contact and social distancing, decreased by 151,000 last month, a larger decline than in July (120,000).

Also, the number of workers in education services, including academies, increased by 18,000 in July but decreased by 5,000 last month. The decrease in workers in business facility management, including travel agencies, expanded from 61,000 in July to 65,000 last month.

Manufacturing workers, the backbone of domestic industry, have continued to decline for seven consecutive months since February this year. The decrease last month was 77,000, larger than July's 73,000. On the other hand, public administration workers, including government-funded job projects, increased by 183,000 last month. The increase was three times that of July (64,000). The reduction in the total number of workers last month despite the COVID-19 resurgence was decisively contributed by public administration.

◆Business Sentiment Falls for the First Time in Five Months= As COVID-19 resurged domestically, business sentiment among companies fell for the first time in five months. The business conditions perceived by non-manufacturing companies were particularly weak.

According to the 'September Business Survey Index (BSI) and Economic Sentiment Index (ESI)' released by the Bank of Korea on the 29th, the BSI for all industries this month was 64, down 2 points from the previous month. Since April (51), the BSI had been steadily recovering but fell for the first time in five months. The manufacturing BSI generally continued its recovery, but the non-manufacturing BSI, which includes many non-face-to-face industries, was particularly weak due to the domestic spread of COVID-19. The non-manufacturing BSI in September was 62, down 4 points from the previous month, also a decline after five months.

Declines were centered on information and communication (-13 points), business facilities, business support, and rental services (-9 points), and wholesale and retail (-4 points). The non-manufacturing industry's business outlook BSI for next month (62) also fell 7 points from the previous month.

The manufacturing BSI was 68, up 2 points from the previous month, and the manufacturing business outlook BSI for next month (68) remained the same as the previous month. By company size, the manufacturing BSI rose for large companies (+5 points) but fell for small and medium enterprises (-4 points). By company type, both export companies (+2 points) and domestic companies (+1 point) increased.

The economic sentiment index (ESI) for September recorded 73.2, down 6.5 points from the previous month. The cyclical component of the ESI, calculated by removing seasonal and irregular variations from the original series, was 70.9, up 0.9 points from the previous month.