Government Attempts 'V-Shaped Recovery' Again with Domestic Demand Boost Measures like Consumer Coupons

[Asia Economy Reporter Eunbyeol Kim] Is a 'V-shaped rebound' possible in the fourth quarter after being dashed by the resurgence of COVID-19 in the third quarter? The government has set a plan to revive the domestic consumption recovery trend by reactivating postponed consumption measures due to the COVID-19 resurgence.

According to the government on the 18th, the card approval amount in the second week of August, before the COVID-19 resurgence became full-scale, increased by 10.4% compared to the previous year. However, after the COVID-19 resurgence and the implementation of social distancing level 2.5 in the metropolitan area, the growth rates compared to the same period last year sharply declined to -2.2% in the first week of September and -7.0% in the second week.

However, after social distancing was eased to level 2, the card approval amount growth rates turned positive at 5.1% in the third week of September, 5.2% in the fourth week, and 3.6% in the fifth week of September. Since the 12th, social distancing has been eased to level 1, and the government expects the consumption recovery trend to gain further momentum.

This means it is a timely moment to revive consumption as social distancing eases and the COVID-19 resurgence slows down.

Employment was again impacted last month due to the COVID-19 resurgence. The year-on-year decrease in employed persons, which had been shrinking since May, increased again to 392,000 last month.

The government believes that domestic demand, including consumption, must be stimulated from now on to drive economic recovery in the fourth quarter. Reviving consumption is expected to improve employment as well.

This is why the government is preparing to fully activate postponed consumption measures such as the eight major consumption coupons due to the COVID-19 resurgence.

When the government announced the third supplementary budget, it estimated that investing a total of 168.4 billion won in the eight major consumption coupon policies would generate a consumption effect exceeding 900 billion won, more than five times the budget. Although the full-scale implementation was delayed by nearly three months from the originally expected August to the end of this month due to COVID-19, the government predicts that if the coupons are properly distributed, the consumption effect close to one trillion won can still be achieved. However, the impact on growth rate is expected to be smaller than if implemented in the third quarter.

However, premature consumption stimulation measures could loosen COVID-19 prevention efforts, and if the attempt to revive consumption worsens the COVID-19 resurgence, the economic shock could be greater. There is concern that if COVID-19 spreads again, the fourth quarter rebound, like the third quarter, could be in vain.

Meanwhile, exports, which have a significant impact on our economy, continue to show a gradual improvement trend. Exports, which declined by 1.7% year-on-year in March when the COVID-19 crisis began, showed a continuous decrease for six months with -25.6% in April, -23.8% in May, -10.9% in June, -7.1% in July, and -10.1% in August, before rising by 7.6% in September.