COVID-19: The Economic Impact in South Korea

COVID-19 Status of South Korea 

It is reported that the total confirmed COVID-19 cases in South Korea is 23,812 with 413 Deaths (1.81% of CFR) and 21,590 Recovered (90.67% of Recovery Rate) as of Sep. 30, 2020. Since the first outbreak of COVID-19 in February, the numbers of New Cases has been fluctuated a lot: 53 on February 20, spiked to 1,602 on March 1, dropped to 2 on May 5, second wave to 441 on August 26 and 61 on September 29, 2020.

[Source: World Meter]

After successfully controlling the 2nd wave of late August and rigorously campaigning the Level 2 Social Distancing during ChuSeok Holidays(Korean version of Chinese Full Moon Days, from October 1 to 4), South Korea could lower down the Social Distancing measures to Level 1 on October 12th, 2020.[Source: S. Korea eases social distancing to lowest level amid coronavirus downward trend]

The Economic Impacts of COVID-19to South Korea

It is evident that South Korean economy is significantly impacted by the unexpected outbreak of COVID-19 although this unprecedented virushas been controlled better than other countries so far.Unemployment rates are rapidly increasing, self-employed businesses are closing their shops, and GDP growth rates turned negative, and so on. The signs of economic recessions are everywhere in this country and most of the media are reporting the economic crisis almost every day.

In March alone, 1.6 million workers were forced to take temporary leave from work following business closures. During April, 467,000 workers lost their jobs.

[Source: How COVID-19 Wreaked Havoc on South Korea’s Labor Market]

The Ministry of Employment and Labor said the government paid out 1.1 trillion won ($916 million) last month in unemployment, up by a whopping 62.9 percent from 428.7 billion won a year ago.

[Source: Unemployment benefits hit record-high in June due to COVID-19 pandemic]

The Bank of Korea’s decision-making body — Monetary Policy Board — presented its economic outlook report, in which it curtailed the growth forecast to minus 0.2 percent for this year, drastically down 2.3 percentage points from its previous estimate.

[Source: S. Korea’s economy to contract this year amid COVID-19 impact: BOK]

Asia’s fourth-largest economy saw gross domestic product (GDP) fall by a worse-than-expected 2.9% in year-on-year terms, the steepest decline since 1998.

[Source: Coronavirus: South Korea falls into recession as exports slump]

How they are overcoming COVID-19?

Although there still are several gray areas including religious group (mostly conservative protestant Christians), far-right forces (backed by opposition parties), relatively high self-employed businesses(25.4% of the total number of businesses), etc. at which the government couldn’t effectively protect COVID-19, South Korea is successfully controlling COVID-19 outbreak without any lockdowns. The people of South Korea generally trust the quarantine policy of the government(which is called ‘K-Quarantine’ which is named after ‘K-Pop’) because of the transparency and openness of government’s reports about COVID-19 status and the democratic way to control the outbreak which is respected by the people although their daily lives are constrained a lot.

Several global news media have also admired that the Korean way of controlling COVID-19 is successful:

A major reason for the rapid surge in confirmed coronavirus cases is the relative openness and transparency of South Korean society. “The number of cases in South Korea seems high at least in part because the country has high diagnostic capability, a free press and a democratically accountable system.”

[Source: How South Korea’s Coronavirus Outbreak Got so Quickly out of Control]

A major factor shaping South Korea’s response was its ability to apply lessons learned during previous outbreaks, especially the country’s MERS coronavirus outbreak in 2015, which resulted in 186 cases and 38 deaths.

[Source: How South Korea prevented a coronavirus disaster—and why the battle isn’t over]

South Korea halted virus transmission better than any other wealthy country during the pandemic’s early months…. South Korea’s economy is expected to decline by just 0.8% this year, the best among the Organization for Economic Cooperation and Development’s forecasts for member nations.

[Source: How South Korea Successfully Managed Coronavirus]

Can they effectively control the economic recession?

It’s not just a dark shadow on the Korean economy after the pandemic. Various economic indicators of South Korea are still relatively better than those of other countries.

At the latest OECD Economic Survey of Korea, OECD projected a rebound in activity after the sizeable drop in the first half of 2020, with a 0.8% contraction in 2020 and 3.1% growth in 2021, absent a resurgence of the pandemic. While domestic-oriented activity is normalizing gradually, the global recession is holding back exports and investments.

[Source: Korea: Keep supporting people and the economy until recovery fully under way]

There also are several other positive reports about South Korean economy:

In the 12 months to June, the UK’s economy crashed 21.7%, while Spain dropped 22.1%. You might be able to argue that was worth it if it had meant lives were saved, but the UK has suffered 611 deaths per million while Spain is up to 622.At the other end of the scale, South Korea has had just 6.3 deaths per million and its GDP has fallen a “mere” (mere is very relative in these crazy times) 2.8%.

[Source: Regardless of COVID restrictions, if people are dying in large numbers your economy is stuffed]

In the latest economic projections by the OECD, South Korea is looking at a mere 1 percent GDP contraction for 2020, the second-best performer among major economies behind only China. In contrast, the euro area is expected to shrink by around 8 percent, and the United States could see full-year contraction on the order of almost 4 percent of GDP.

[Source: COVID-19 Has Crushed Everybody’s Economy—Except for South Korea’s, ]

The country’s real gross domestic product (GDP) contracted 3.2 percent in the April-June period from the previous quarter, the biggest on-quarter drop since a 3.3 percent retreat posted in the last three months of 2008, according to preliminary data from the Bank of Korea (BOK).

[Source: S. Korean economy shrinks revised 3.2 pct on-quarter in Q2: BOK]

Post-COVID Outlooks

COVID-19 is yet to be ended in this country like everywhere in this planet. The vaccines are still under clinical trials and expected to be actually dosed to the people, at best, around a year from now.It may be premature to talk about post-COVID outlooks while it is still pandemic.

KDI (KOREA DEVELOPMENT INSTITUTE) has published the ‘KDI Economic Outlook 2020-1st Update’ on September 8, 2020 with the following 4 cautious outlooks:

[Source: KDI Economic Outlook 2020-1st Update]

  • The economy is expected to grow by 3.5% with the limited recovery of the economy in 2021, after a global spread of COVID-19 has significantly reduced private consumption and exports, with a 1.1% reverse growth in 2020.
  • The current balance is expected to see a surplus of $57 billion in 2020, a slight rebound from $58 billion in 2021, as trade conditions improve, but exports have declined due to the global recession.
  • Consumer prices are expected to rise 0.7% in 2021, with the economy and oil prices partially rebounding after a 0.5% rise in 2020 as demand pressures declined due to a contraction in demand.
  • The number of people employed will increase by 150,000 in 2021, after a decline of 150,000 in 2020, as the job market shrinks mainly in services with many face-to-face contacts.

On September 23, 2020, Park Young-sun, the Minister of SMEs and Startups of South Korean Government, announced that it will pay USD 858 ~ 1,714 of ‘New Hope Funds’ starting on September 25 to small business owners who are suffering financial difficulties and a downturn in sales due to social distancing as part of efforts to prevent the spread of COVID-19 outbreak.

[Source: New Hope Fund for Small Business Owners]

Will the World’s 10th largest economy recover in 2021 after successfully overcoming COVID-19 pandemic?

Stephen (Byung-Oh) Woo, Partner – Korea, Nirvighana

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