[Weekly Review] Government Urges Trust in COVID Response... "Concerns Over 1Q Growth Rate Revision"

Prime Minister and Deputy Prime Minister Appeal for "Increased Consumption, Livelihood Stability, and Normal Activities"

COVID-19 Consumption Slump Realized, 1Q Growth Rate Adjustment Possible
Employment Slump in 40s, Export 'Pause' from 1st to 10th, First Tax Revenue Deficit under Moon Government

Government Warns "Economic Impact May Be Greater Than MERS and SARS"
Bank of Korea Provides Ultra-Low Interest Loans to Companies; Ministry of Strategy and Finance Injects Management Stabilization Funds for SMEs

Prime Minister Chung Sye-kyun speaking at the Central Accident Management Headquarters meeting for COVID-19 response held at the Seoul Situation Center of the Central Disaster and Safety Situation Room in the Government Seoul Office Building on the 12th. Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Moon Chae-seok] The government has poured out support measures such as ultra-low interest loans throughout the week to minimize the impact of the novel coronavirus infection (COVID-19) on our economy. While the Prime Minister emphasized consumption increase and livelihood, each ministry mobilized policy tools such as financial support. However, concerns are expanding as a 'negative growth' forecast for the first quarter has been raised.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, attends the Macroeconomic and Financial Meeting held at the Bankers' Hall in Jung-gu, Seoul on the 14th and delivers opening remarks. Photo by Kang Jin-hyung aymsdream@

◆Government emphasizes "consumption increase and livelihood stabilization"… appeals for "normal economic activities"= The government said that the public has begun to trust the government's crisis management ability regarding COVID-19 and emphasized future consumption increase and livelihood stabilization. Prime Minister Jeong Sye-kyun emphasized at the Central Disaster and Safety Countermeasure Headquarters (CDSCH) meeting held at the Government Complex Sejong on the morning of the 14th, "The government is doing its best to protect the safety of the people and will actively work to increase consumption and stabilize livelihoods." He added, "I hope the public will trust the government, refer to safety action guidelines, maintain daily life, and companies will actively engage in scheduled economic activities." Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki also said at the 'Macroeconomic and Financial Meeting' held at the Bankers Hall in Jung-gu, Seoul, on the same day, "Some impact on the real economy is inevitable," but added, "(The COVID-19 situation) has a large effect on economic consumption sentiment contraction due to excessive fear and anxiety beyond the actual impact," and requested, "We ask the public to now engage in normal economic and consumption activities."

Hong Min-seok, Director of the Economic Analysis Division at the Ministry of Economy and Finance, briefing on the "Recent Economic Trends February Issue (Green Book)" on the morning of the 14th at the Government Sejong Complex in Sejong City. (Photo by Yonhap News)

◆COVID-19 shock is not small… "Economic impact likely greater than MERS and SARS"= Although the government is making every effort to boost consumer sentiment, the damage COVID-19 may cause is expected to be significant. On the 14th, the Ministry of Economy and Finance (MOEF) forecasted at the 'Recent Economic Trends February Issue (Greenbook)' presentation that the shock to our economy from COVID-19 could appear faster and stronger than during Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). Hong Min-seok, head of the MOEF Economic Analysis Division, explained, "Looking at COVID-19, MERS, and SARS, the human, material, and economic exchanges between the affected countries and Korea are incomparable," and "Due to the development of social media, the speed at which the shock of infectious diseases is reflected in economic indicators has increased." During the 2015 MERS outbreak, Saudi Arabia accounted for only 0.1% of total tourists, but now China accounts for 34.4%. The export share difference is also large, with Saudi Arabia and China accounting for 1.8% and 25%, respectively. Compared to the SARS outbreak, Korea's export share to China has increased by more than 10 percentage points from 14.6%.

Due to the impact of the novel coronavirus infection, the Myeongdong shopping street in Seoul appeared deserted on the 9th despite it being the weekend. Photo by Yoon Dong-joo doso7@

◆COVID-19 consumption slump materializes= Specific signs have emerged that the consumption slump due to COVID-19 has materialized. Credit and debit card usage amounts shrank by about 11%. According to the 'Credit and Debit Card Merchant Approval Performance (Weekend Basis)' submitted by the Credit Finance Association to the National Assembly on the 11th, card usage on the first weekend of February (1st-2nd), right after the Lunar New Year holiday, was 3.3523 trillion won, down 11.5% from 3.7667 trillion won on the weekend before the holiday (January 18-19). This was during the period when confirmed COVID-19 cases were increasing after the holiday. It was even lower than the figures from December last year, when there were no confirmed domestic COVID-19 cases, and mid-last month. Card usage in December last year was maintained in the mid-3 trillion won range: 3.6292 trillion won on the 7th-8th, 3.8501 trillion won on the 14th-15th, 3.6339 trillion won on the 21st-22nd, and 3.5472 trillion won on the 28th-29th. Card usage last month was similar to the previous month, with 3.4798 trillion won on the 4th-5th and 3.5592 trillion won on the 11th-12th.

Amid a sharp decline in cargo imports from China due to the recent novel coronavirus impact, the designated storage facility at Incheon Airport Customs in Yeongjongdo, Jung-gu, Incheon, appeared unusually empty on the 6th, unlike its usual state filled with cargo./Yeongjongdo=Photo by Kim Hyun-min kimhyun81@

◆Employment and export slump in 40s age group= Employment and export performance in Korea were disappointing. Even tax revenue, the source of fiscal resources, showed a deficit. The economic participation rate and employment rate of people in their 40s, the 'backbone' of the Korean economy, remained at the lowest level since 2013. According to Statistics Korea on the 12th, the number of employed people last month was 26.89 million, an increase of 568,000 (2.2%) compared to the same month last year. This was the highest since August 2014 (670,000), but the statistics did not reflect the impact of COVID-19. Employment among people in their 40s worsened. New employment in the 40s age group decreased by 84,000, the only age group to decline. The economic participation rate (79.7%) and employment rate (78.1%) of people in their 40s also fell to the lowest levels since January 2013 (78.8% and 77.2%, respectively).

Exports were also lackluster. According to the Korea Customs Service's announcement on the 11th, exports from the 1st to the 10th of this month (provisional customs clearance basis) amounted to $10.7 billion, an increase of 69.4% ($4.38 billion) compared to the same period last year, but this was due to an increase in working days from 4 days last year to 7 days this year. On the contrary, the average daily export amount was $1.53 billion, down 3.2% from $1.58 billion during the same period last year. Although the export indicators from the 1st to the 10th do not necessarily lead to the end-of-month figures, the government's claim that exports in February would turn positive has become meaningless. Considering that last month's first export report of the new year showed an average daily export amount of $1.77 billion, a 5.3% increase from the previous year, raising expectations for recovery, the mood has dampened.

Kim Hyun-joon, Commissioner of the National Tax Service

◆Tax revenue deficit for the first time in 5 years… first under Moon administration= Tax revenue, the source of government finances, also decreased. On the 10th, the MOEF announced that total revenue for fiscal year 2019 was 402 trillion won, and total expenditure was 397.3 trillion won. Among total revenue, excluding deposits, fines, confiscations, penalties, and previous year carryovers, national tax revenue was 293.4543 trillion won, down 116.1 billion won from the previous year, and 1.3 trillion won less than the revenue budget (294.8 trillion won). The 'tax revenue deficit,' where national tax revenue is less than the revenue budget, occurred for the first time in 5 years since 2014's 10.9 trillion won deficit. It is the first tax revenue deficit under the Moon Jae-in administration.

The fact that the cause of this tax revenue deficit is attributed to poor corporate performance is a serious problem. Despite raising the top tax rate from 22% to 25%, corporate tax revenue was 8.9% (7.0758 trillion won) less than the initial budget of 79.2501 trillion won. The MOEF explained, "The decline in mid-term prepayments due to poor corporate performance in the first half limited the increase." According to the first half of last year, the consolidated operating profit of listed companies on the Korea Exchange plunged 37.1% to 55.1 trillion won compared to 87.5 trillion won in the first half of the previous year.

Koo Yoon-chul, 2nd Vice Minister of Strategy and Finance./Photo by Moon Ho-nam munonam@

◆Government and industry "Possibility of adjustment in Korea's 1Q growth rate"= The government and global financial institutions have predicted that Korea's GDP growth rate in the first quarter may decline. On the 14th, Koo Yoon-chul, 2nd Vice Minister of MOEF, said at the '1st Public Institution Investment Execution Inspection Meeting' held at the Korea Trade Insurance Corporation, "There is a concern that an adjustment in the first quarter growth rate may occur due to the COVID-19 situation," adding, "Our economy has shown signs of improvement in production, consumption, investment, and economic sentiment since the beginning of the year, but the recent COVID-19 outbreak is increasingly likely to act as a downside risk to the economy." According to the financial investment industry on the 15th, global investment bank Morgan Stanley recently forecasted in a report, "If production in China rapidly resumes from the 10th of this month, the impact of this situation on the global GDP growth rate in the first quarter of this year will be about 0.15 to 0.30 percentage points," and "In this case, Korea's growth rate will fall by 0.8 to 1.1 percentage points." If COVID-19 gradually normalizes, Korea's first-quarter growth rate is expected to fall by 1.1 to 1.4 percentage points, and if the impact prolongs, it will drop by 1.4 to -1.7 percentage points. Last year's GDP growth rates were 1.0% in Q2, 0.4% in Q3, and 1.2% in Q4.

Economic heads attending the Macroeconomic and Financial Meeting held on the 14th at the Korea Federation of Banks building in Jung-gu, Seoul. From the left, Eun Sung-soo, Chairman of the Financial Services Commission; Lee Ju-yeol, Governor of the Bank of Korea; Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance; Yoon Seok-heon, Chairman of the Financial Supervisory Service. Photo by Kang Jin-hyung aymsdream@

◆Bank of Korea ultra-low interest loans and MOEF SME management stabilization fund support= The government has introduced support measures to reduce corporate financing risks. The Bank of Korea plans to prepare a low-interest fund supply plan for companies affected by COVID-19. It is highly likely to utilize the Financial Intermediation Support Loan (FISL), which is part of the Bank of Korea's monetary credit policy. FISL is a system where the Bank of Korea lends funds to commercial banks at an interest rate of 0.5 to 0.75% to promote loans to small and medium-sized enterprises (SMEs) by commercial banks. It has the advantage of being specialized in supporting affected companies rather than a broad interest rate cut. Bank of Korea Governor Lee Ju-yeol said at the Macroeconomic and Financial Meeting, "Damage caused by COVID-19 is materializing mainly in the service sector and some manufacturing sectors," and "The Bank of Korea is preparing specific financial support measures for the service sector, which is suffering from economic activity contraction due to anxiety and a decrease in travelers, and the manufacturing sector, which is facing difficulties in production due to difficulties in procuring raw materials and parts from China." The MOEF also announced management support policies for SMEs and small business owners. On the 12th, Deputy Prime Minister Hong announced at the New Coronavirus Response Economic Ministers' Meeting and Economic Vitality Measures Meeting that from the 13th, management stabilization funds of 25 billion won for SMEs and 20 billion won for small business owners will be provided at reduced interest rates. This is in line with the approximately 2 trillion won scale of additional policy finance supply and the extension of loan and guarantee maturity policies announced by Deputy Prime Minister Hong at the New Coronavirus Response Economic Ministers' Meeting on the 7th.

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