"1Q Korean Private Consumption Expenditure Down 0.4%P Due to Impact of Novel Coronavirus"

National Future Institute "If China's Growth Rate Drops by 0.6%P, Exports to China Will Shrink by $140 Million"

*Source: Korea Institute for Future Strategies

[Asia Economy Reporter Kim Eun-byeol] Due to the impact of the novel coronavirus infection (Wuhan pneumonia), it is forecasted that domestic private consumption expenditure in the first quarter will decrease by about 0.4 percentage points.

According to the National Future Research Institute on the 10th, domestic private consumption expenditure in the first quarter of this year is expected to decrease by around 0.4 percentage points. Even if the government increases government consumption by executing fiscal spending, domestic private consumption is inevitably expected to decline due to the impact of the novel coronavirus. Recently, citizens' outdoor activities have noticeably decreased due to infection concerns, and offline retail stores such as department stores and large marts confirmed to have been visited by confirmed cases have been closing one after another, making the damage to offline retailers a reality. The sharp decline in Chinese tourists is also expected to negatively affect private consumption.

Exports to China are also inevitably affected. Since a hit to China's domestic demand is expected, China is forecasted to reduce imports from overseas countries. The National Future Research Institute estimated that if China's economic growth rate decreases by 0.6 percentage points in the first quarter of this year, the export growth rate to China will decrease by about 1.0 percentage point, equivalent to approximately 140 million USD.

Additionally, based on its own model, the National Future Research Institute estimated that if China's economic growth rate falls by 1 percentage point, South Korea's economic growth rate will decrease by 0.3 to 0.5 percentage points. Therefore, if China's economic growth rate drops by 0.6 percentage points, South Korea's domestic economic growth rate could decline by 0.18 to 0.3 percentage points on an annual basis.

However, if the novel coronavirus is somewhat controlled by around April, the impact is expected to be limited to the first quarter only, and the first quarter economic growth rate could fall by 0.72 percentage points.

Professor Kim Sang-bong of the Department of Economics at Hansung University said, "Due to the impact of the novel coronavirus, China's economic growth rate is expected to decline by 0.5 to 1.0 percentage points," adding, "As a result, South Korea's growth rate is also expected to decrease by 0.2 to 0.3 percentage points annually."

Meanwhile, during the past outbreaks of Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS), South Korea's economic growth rate was also affected. During the SARS outbreak in 2003, South Korea's economic growth rate dropped from 4.2% in the first quarter to 2.3% in the second quarter, and China's growth rate fell from 11.1% to 9.1%. MERS is estimated to have reduced the growth rate by about 0.2 percentage points.

However, at the time of the SARS outbreak, China's share of global Gross Domestic Product (GDP) was low at around 4.2%, but as of the end of last year, it had expanded to 16.3%, indicating that China's influence has grown significantly.

According to the Hyundai Research Institute's report "Changes in the Global Status of China's Manufacturing Industry," from 2003 to 2018, over 16 years, China's share in private consumption and fixed investment sectors expanded from 3.1% to 10.8% and from 7.4% to 11.8%, respectively. China's share in global merchandise trade also grew from the 5% range in 2003 to just above 10% in 2018.

China's share of global automobile production also expanded from 7.3% in 2003 to 29.2% in 2018. In steel products, the share of Chinese exports in global exports increased fivefold from 2.6% to 13.3% during the same period. China's share among global crude oil consumers expanded from 7.2% to 13.5%, and China's share of steel production rose significantly from 22.9% to 51.1%.

The Hyundai Research Institute stated, "China's economic share in the global economy has greatly expanded," and warned, "Since the contraction of global economic activities is expected to be greater than during the SARS period, South Korea should minimize the domestic transmission of uncertainty and actively deploy stimulus measures if signs of domestic demand recession appear."

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