"If China's GDP Drops by 1%... South Korea's GDP Shrinks by 0.2% per Quarter"

Analysis by the National Assembly Budget Office
China Exports Have Greater Impact on Korean Economy than Domestic Market
A 1% Decrease in China Exports Leads to 0.7% Quarterly Decline in Korea's Exports to China

[Asia Economy Reporter Kim Eun-byeol] Due to the impact of the novel coronavirus infection (Wuhan pneumonia), warning signs have increased regarding South Korea's ability to achieve its economic growth target for this year. As China's economic growth rate is expected to plummet this year, the negative effects on South Korea are becoming increasingly evident.

According to the "Economic Industry Trends & Issues" report released on the 31st by the National Assembly Budget Office, if China's Gross Domestic Product (GDP) decreases by 1%, South Korea's GDP is expected to shrink by 0.2% per quarter. The impact of China's GDP contraction is estimated to affect South Korea for about one year.

The main factor reducing South Korea's GDP is the decline in exports that follows when China's economy weakens. If China's GDP decreases by 1%, South Korea's exports to China will decrease by 0.5% per quarter, with this effect also lasting for about a year.

Oh Hyun-hee, an analyst at the Economic Analysis Bureau of the National Assembly Budget Office, stated, "China is South Korea's largest trading partner, accounting for 24.9% of total exports and 21.4% of total imports. The exposure of South Korea's financial sector to China is 13.7%, the second largest after Taiwan (19.4%), so the financial sector's interconnectedness is also high."

When analyzing the impact of China's economy on South Korea by dividing it into exports and domestic demand, China's exports have a greater effect on South Korea's economy than domestic demand. If China's exports decrease by 1%, South Korea's exports to China decrease by 0.7% per quarter, with the effect lasting about nine months. South Korea's GDP is also expected to decrease by 0.2% in the first quarter after China's exports decline and by 0.3% in the second quarter. In contrast, the impact of shocks to China's domestic demand on South Korea's exports to China and economy was minimal.

The Hyundai Research Institute also predicted that if the novel coronavirus spreads further within South Korea, the economic growth rate for the first quarter of this year will fall by 0.6 to 0.7 percentage points compared to the same period last year, with an annual decline of up to 0.2 percentage points. In its report titled "The Impact of the Novel Coronavirus on the Korean Economy," the Hyundai Research Institute forecasted that if the virus spreads significantly domestically, the number of foreign tourists could decrease by up to approximately 2.02 million, and tourism revenue could fall by 2.9 trillion won. If the virus spreads rapidly within the country, consumer sentiment is expected to shrink, leading to a decrease in domestic consumption as well. Domestic consumption expenditure by Koreans in the first quarter is estimated to decrease by up to 0.4 percentage points. The report advised that preemptive measures such as a "super supplementary budget" would be necessary to minimize the negative impact of the novel coronavirus on the Korean economy.

This content was produced with the assistance of AI translation services.