Hong Nam-ki "Downward Pressure on Economy... Both Domestic Demand and Exports Hit"

Deputy Prime Minister Hong Chairs Ministerial Meeting

"Export Support Measures to Be Prepared Within This Month"

Increasing Response Intensity for Rapid Developments

[Image source=Yonhap News]

[Asia Economy Reporters Kwangho Lee and Sehee Jang] As signs emerge that the novel coronavirus infection (Wuhan pneumonia) crisis may be prolonged, the government has raised concerns. On the 3rd, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated regarding the novel coronavirus, "If an early resolution is not achieved, it will act as a downward pressure on the economy."

On the same day, Deputy Prime Minister Hong held a meeting with related ministers at the Government Seoul Office to respond to the novel coronavirus and said, "Although the impact of this crisis on our economy is currently limited, it is difficult to predict how the situation will develop going forward."

Deputy Prime Minister Hong’s remarks indicate that economic uncertainty could deepen due to the novel coronavirus crisis. On January 31, he had posted on his Facebook, "There is concern that the recent novel coronavirus crisis might affect the sentiment of economic agents at the beginning of the year," but also noted, "The impact on real economic indicators is expected to be limited."

The reason Deputy Prime Minister Hong raised the level of concern just three days later appears to be because the spread of the novel coronavirus has progressed faster than expected, increasing the likelihood that both our exports and domestic demand will be hit. On this day, Hong said, "This crisis is likely to act as a factor slowing growth in the Chinese economy itself to some extent," adding, "In that case, it is highly likely to have a broadly negative impact on the global economy, raising concerns about its effects on our economy as well." He emphasized, "The proportion of the Chinese economy in our economy has expanded significantly compared to the past," and stated, "We will thoroughly analyze the impact on the Chinese and international economies under various scenarios and concentrate all efforts on minimizing the impact on the domestic economy."

Deputy Prime Minister Hong continued, "Separate response teams have been established by relevant ministries for sectors such as exports, food and accommodation, tourism, transportation and logistics, small and medium enterprises, and self-employed businesses to assess the situation on the ground," and mentioned, "We will prepare export support measures within this month focusing on resolving management difficulties for export companies and diversifying markets."

The Ministry of Trade, Industry and Energy will hold an "Export Situation Review Meeting" chaired by Minister Sung Yun-mo on the same day. The plan is to closely analyze the impact on our exports and enable domestic companies to take proactive measures before economic activities fully resume after China’s Lunar New Year holiday.

Minister Sung said, "Unlike during the Severe Acute Respiratory Syndrome (SARS) crisis in the past, the share of the Chinese economy has grown fourfold," and added, "We plan to discuss specific measures such as expanding trade insurance support for small and medium-sized export companies highly dependent on China and identifying difficulties."

Professor Jeong In-gyo of Inha University’s Department of International Trade said, "If the novel coronavirus crisis prolongs, service industries such as travel, aviation, accommodation, and food and beverage will be hit, and over time, the weakening of domestic demand will also affect the goods sector," adding, "The Korean economy could suffer significant damage to both exports and domestic demand."

Meanwhile, according to the "Overseas Economic Focus" released by the Bank of Korea on the 2nd, SARS spread widely centered on China and Hong Kong from November 2002 to July 2003, resulting in 8,096 infections and 774 deaths across 29 countries. China’s GDP growth rate in the second quarter of 2003 was 9.1%, down 2 percentage points from 11.1% in the first quarter, mainly due to contraction in tourism-related services. In particular, travel, accommodation, transportation, and retail sectors were mainly affected.

The Bank of Korea estimates that the impact on Korea’s economic growth rate from SARS in 2003 and Middle East Respiratory Syndrome (MERS) in 2015 was approximately 0.1 percentage points and 0.3 percentage points annually, respectively.

The Hyundai Research Institute analyzed that if China’s GDP decreases in the first quarter of this year due to the spread of the novel coronavirus, Korea’s nominal exports could decline by $150 million to $250 million. The National Assembly Budget Office predicted that if China’s GDP falls by 1%, Korea’s exports to China would decrease by 0.5%.

The National Assembly Budget Office predicted that if China’s GDP falls by 1%, Korea’s exports to China would decrease by 0.5%.

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