KDI "Economic Slump Eased but Uncertainty over New Coronavirus Expands"

Economic Trends February Issue Announcement

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyunjung] The Korea Development Institute (KDI) recently stated that although the domestic economic downturn has eased, the economic uncertainty caused by the novel coronavirus infection has significantly expanded. They also noted that the flow of economic improvement in the future is likely to be constrained.

On the 9th, KDI announced in the "Economic Trends February Issue" that "recently, our economy's downturn has eased, but the spread of the novel coronavirus may restrict economic recovery going forward."

Since November 2018, KDI had described the domestic economic situation as "slowing," but from April last year, it was diagnosed as "downturn" for nine months, and in January this year, as "possibility of easing." Regarding this, they pointed out that in February, service industry production maintained a relatively high growth rate, industrial production shifted to a significant increase, manufacturing shipments expanded, and inventory ratios declined, concluding that the "downturn has eased" with a more positive assessment.

In fact, the economy showed a clear improvement trend. Total industrial production in December recorded a 3.2% growth rate, 2.0 percentage points higher than the previous month, and also increased by 1.4% month-on-month after seasonal adjustment. Industrial production and service industry production increased by 4.2% and 2.8%, respectively. In manufacturing, shipments increased by 4.4%, and the inventory ratio was 107.8%, lower than the previous month (115.7%). The average operating rate in manufacturing rose to 74.3%, higher than the previous month (71.9%).

The problem is the rapidly spreading novel coronavirus since the end of January. KDI stated, "Since the development direction of the novel coronavirus is uncertain, it is difficult to quantitatively estimate the macroeconomic impact at this point," and forecasted that "from February onward, the decrease in foreign tourists and the reduction of domestic people's external activities will negatively affect service industry production, especially in accommodation and food services."

In the past, during June to August 2015, when the negative impact of Middle East Respiratory Syndrome (MERS) was concentrated, foreign tourists decreased by 45.5% compared to the same period the previous year (an average of 464,000 per month), and service industry production was 0.8 percentage points lower than the annual average.

KDI also observed that if there are disruptions in the supply of Chinese parts, domestic industrial production could be partially contracted.

Following the favorable economic indicators, experts slightly raised their economic growth rate forecasts for this year. According to a survey conducted by KDI of 22 domestic economic experts (19 responses), the average GDP growth rate forecast for this year was 2.1%, and for next year, 2.1%. While there was no change in the forecast for next year, this year's figure was revised upward by 0.1 percentage points from the 2.0% forecast made in October last year. However, KDI explained that "although this year's forecast has been revised upward, the downward pressure on the domestic and external economy is still considered high."

Experts expect that while the export downturn will ease, the rebound will not be significant. KDI stated, "Exports (in terms of value) are expected to ease their downturn due to a slight expansion in global economic growth and some base effects, but are projected to increase by only 2.1% and 3.5% in 2020 and 2021, respectively." The unemployment rate is expected to fall to 3.6%, lower than last year, and the increase in the number of employed persons is expected to be in the low to mid-200,000 range. Consumer prices are expected to rise gradually from the second half of this year but are projected to show a low increase rate of around 1%, significantly below the price stability target until 2021.

However, KDI evaluated that this survey, conducted from January 22 to 29, likely did not fully reflect the impact of the novel coronavirus.

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