[Weekly Review] Government on Alert Due to 'Corona'... Striving to Minimize Economic Damage

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance. / Photo by Kang Jin-hyeong aymsdream@

[Asia Economy Reporter Kim Bo-kyung] As the impact of the novel coronavirus infection (Wuhan pneumonia) is expected to deal a significant blow to our economy, the government is rolling out measures day after day. From financial support policies for small and medium-sized enterprises (SMEs) and small business owners to mobilizing all policy tools to revive the automobile industry experiencing a 'domino shutdown' crisis, the government is taking comprehensive action. However, concerns are growing that the domestic economy may further deteriorate, as last year's current account surplus recorded its lowest level in seven years.

◆ 2 trillion won policy finance for SMEs and small business owners affected by COVID-19 = The government has decided to actively provide financial support to SMEs and small business owners affected by the novel coronavirus. On the 7th, Hong Nam-ki, Deputy Prime Minister and Minister of Strategy and Finance, said at the 'Economic Ministers' Meeting on Novel Coronavirus Response,' "We will supply an additional approximately 2 trillion won in policy finance to the groups expected to be affected by this incident and extend the maturity of existing loans and guarantees." Specifically, 1.9 trillion won will be newly supplied to facilitate smooth funding for small and medium-sized enterprises. If the maturity of loans or guarantees from policy finance institutions is due within six months, it will be extended for up to one year, and principal repayments will be deferred for one year. For small business owners and self-employed individuals, 20 billion won in management stabilization funds will be newly provided at low interest rates in the 2% range, and 100 billion won in special guarantees will also be newly supported. The scale of microfinance loans for small merchants in traditional markets will be additionally expanded by 5 billion won. Furthermore, the government announced plans to implement emergency supply and demand adjustment measures for masks and hand sanitizers. Once this measure is implemented, mask and hand sanitizer producers must report daily production, shipment, and export volumes, and retailers must notify the Ministry of Food and Drug Safety if selling masks in large quantities. This aims to eradicate hoarding and smuggling of masks and hand sanitizers.

◆ Reviving the automobile industry... Full effort in negotiations to resume operations at Chinese factories = As Chinese factories have been shut down due to the spread of the novel coronavirus, causing a 'domino shutdown' where domestic automakers and other partner companies are closing their doors, the government has decided to accelerate negotiations with the Chinese government to resume operations at local automobile parts factories. The plan is to use all channels, including the Embassy in China, automakers, and KOTRA, to negotiate with local Chinese governments. In preparation for the resumption of parts production in China, the government will minimize the time required for parts supply by providing 24-hour customs clearance support. It will also provide financial and manpower support for domestic alternative production. The government plans to promptly support funds needed for new or expanded factories and new equipment investments for alternative automobile parts production, and prioritize management stabilization funds for companies facing liquidity crises due to sharp sales declines. For workplaces where working over 52 hours per week is unavoidable, special extended work hours will be promptly authorized, and additional employment will be supported through automobile industry retired personnel reemployment programs. On the 7th, Sung Yun-mo, Minister of Trade, Industry and Energy, said, "Through these measures, we will quickly resolve uncertainties in automobile parts supply in the short term and normalize automobile production. We will also thoroughly prepare for the possibility of a prolonged crisis."

[Image source=Yonhap News]

◆ Current account surplus hits lowest in 7 years due to export decline = Last year, South Korea's annual current account surplus recorded its lowest level in seven years. The main reason was a sharp decrease in the goods balance surplus due to a significant drop in exports caused by falling semiconductor prices and other factors. According to the 'December 2019 Balance of Payments (Provisional)' released by the Bank of Korea on the 6th, last year's current account surplus was $59.97 billion, down $17.5 billion from the previous year. This is the lowest level in seven years since 2012 ($48.79 billion). The causes were the sharp drop in semiconductor prices and a decrease in global trade volume. Last year's current account surplus as a percentage of GDP was estimated at about 3.5 to 3.6%. Exports decreased by 10.3% to $561.96 billion compared to the previous year. As the current account surplus recorded its lowest level in seven years, concerns are growing that the domestic economy may further deteriorate. Given Korea's economic structure with a high export ratio, a decrease in the current account surplus means worsening terms of trade, which can lead to domestic consumption contraction. This results in reduced investment capacity, leading to job losses, and subsequently, production and consumption shrinkage.

◆ Consumer prices rise to the 1% range for the first time in 13 months = The consumer price index in January rose 1.5% compared to the same month last year. This is the first time in 13 months since December 2018, when it recorded 1.3%, that the index reached the 1% range. Statistics Korea analyzed that the base effect of the decline in agricultural products and petroleum products, which had caused the 0% range inflation last year, has disappeared. The impact of the novel coronavirus is expected to be reflected in February's prices. By item category, agricultural, livestock, and fishery products rose 2.5% compared to a year earlier. Industrial products increased by 2.3%, among which petroleum products rose 12.4%, raising the overall inflation by 0.49 percentage points. This is the largest increase in petroleum prices since July 2018 (12.5%). Service prices rose 0.8%. Personal services increased by 1.7%, with non-dining services rising 2.3%, contributing 0.44 percentage points to overall inflation. Rent (-0.2%) and public services (-0.5%) declined.

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