[Desk Column] The Era of Minus

Structural Factors of Aging Population and Low Growth Hit by Major COVID-19 Crisis
Exports and Domestic Demand Collapse, Massive Layoffs and Restructuring Imminent
To Overcome Unprecedented Crisis, Must Take the Road Not Taken

Kyung-ho Lee, Head of Editorial Planning Team

The economy is entering an era of negative growth. Structural factors such as aging population, population decline, and low growth are compounded by the widespread impact of the unprecedented adverse event of the novel coronavirus disease (COVID-19). It has become inevitable that not only the three main economic agents?government, corporations, and households?but also the key sectors supporting the economy will experience negatives such as decline, decrease, and regression instead of positives like growth, increase, and improvement. The government’s treasury is already depleted. The national treasury, which was already empty in many places due to "reckless jobs" and "reckless welfare," is now bottoming out with a massive supplementary budget approaching 12 trillion won due to COVID-19. There are even voices suggesting that another supplementary budget may be necessary. While there are many areas where tax money needs to be spent, the inflow of tax revenue is shrinking. The three main pillars of tax revenue are income tax, corporate tax, and value-added tax. These three taxes account for 40% of total national tax revenue, generally in the order of income tax > value-added tax > corporate tax.

Corporate tax revenue fluctuates depending on corporate performance. For example, Samsung Electronics, a leading company, paid about 17 trillion won in corporate tax during the semiconductor boom in 2018, but last year it dropped by more than half. Although there is analysis suggesting that semiconductors have entered another boom period, the outlook remains uncertain due to the impact of COVID-19. The automotive industry is seeing sharp declines in both domestic sales and exports, with some companies incurring losses the more they sell. The petroleum industry is suffering from the double burden of decreased demand and shrinking margins. With global air routes closed and travel demand plummeting, the airline and travel & tourism industries are virtually devastated. The future looks bleak. Duty-free shops, department stores, hotels, and food sectors have also lost their seasonal booms. Events hosted by the government, corporations, institutions, and the private sector have been canceled one after another, causing the MICE (Meetings, Incentives, Conferences, and Exhibitions) industry?an industry without chimneys?to falter. In 2017, there were 224,465 MICE-related events held domestically. The number of domestic participants was 36,863,000, and foreign participants numbered 1,404,000. The total sales of the MICE industry were about 5 trillion won, employing approximately 23,000 people. When events are canceled and the number of domestic and foreign participants decreases, sales inevitably decline.

The crisis in industries and companies leads to a crisis for workers. This is the era of restructuring and downsizing. It then transitions into an era of income reduction and consumption contraction. Downsizing winds are blowing across all sectors, including automobiles, petroleum, shipbuilding, heavy industries, as well as distribution, travel, and aviation. Without any clear special factors or positive developments and with the ongoing impact of COVID-19, the number of workers pushed out onto the streets will inevitably increase. Job changes and reemployment will not be easy. The path of entrepreneurship, where many self-employed operate, is already a rough road heading into the valley of death.

The bottoming out of the economy has disappeared. If people do not go to department stores or large marts, they certainly will not visit traditional markets. If large corporations have caught the flu, the first, second, third, and so on "nth-tier" companies are seriously ill. When the incomes of the government, corporations, regular workers, irregular workers, day laborers, and self-employed decrease, consumption decreases. Domestic demand is hard to revive. However, despite difficulties in the private sector, the public sector will remain relatively robust. When the fundamentals of the economy are shaken, the ability to respond to external variables such as oil prices, exchange rates, and interest rates also weakens. When geopolitical risks such as inter-Korean relations are added, the dreaded "Korea discount" that we have long wanted to shake off is resurrected.

"The economy is psychology," they say. There may be criticism that this view is too pessimistic. It is not that we want to see it this way, but it appears so, and there is no choice. This is an "unprecedented crisis," an extraordinary crisis. To turn this era of negatives back into an era of positives, we must take a different path than before. Looking at the government obsessed with masks and the National Assembly that passed the Tada ban law, it seems we are taking the "already traveled path" again instead of the "untraveled path." This alone is a negative for the Republic of Korea.

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