Korean Economy Faces 'Two-Track Crisis'... Weak Stamina Hit by 'COVID-19 Pandemic' (Comprehensive)

Impact from Real Economy to Financial Markets
Experts Say "COVID-19 Pulled the Trigger of the Crisis"

Due to the impact of the COVID-19 pandemic, global stock markets plummeted, causing the KOSPI index to start the day with a sharp decline of over 8% on the 13th, breaking below the 1690 level during trading. On this day, dealers are busy working in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Moon Honam munonam@

[Asia Economy News Reporter Kim Hyun-jung (Sejong), Reporter Kim Eun-byeol, Reporter Joo Sang-don (Sejong), Reporter Jang Se-hee] As the global pandemic of the novel coronavirus infection (COVID-19), so-called 'corona pandemic,' becomes a reality, the domestic financial market and real economy are rapidly freezing. Experts predict that the situation could quickly worsen as an external shock of a global infectious disease adds to the already weakened domestic economy. The government, which had been focusing on quarantine and revitalizing domestic consumption, is also concerned about the burden on the financial system.

On the 13th, Kim Yong-beom, the 1st Vice Minister of the Ministry of Economy and Finance, held a meeting with private financial market experts at the Seoul Conference Center Dalgaebi and stated, "Due to concerns about the global spread of COVID-19 and its serious impact on the real economy, financial market volatility is increasing," and announced plans to inspect each sector of the financial system and implement market stabilization measures through private cooperation. This meeting was urgently arranged as domestic and international financial market instability grew, with global stock prices and major countries' government bond yields plummeting at an unprecedented pace. Attendees included financial sector representatives such as securities firms and banks, as well as industry stakeholders from Samsung Electronics, Hyundai Motor Company, and others. They particularly agreed that the COVID-19 situation is seriously affecting the economy and finance, and that communication between the private sector and government is necessary.

◆Exports and Consumption Both Hit by 'Corona Shock'... Comparable to Financial Crisis and THAAD Incident= In the 'Economic Trends (Green Book) March Issue' published earlier by the Ministry of Economy and Finance, the government also diagnosed that recent domestic economic activities and sentiment are both contracting, and uncertainty in the real economy and financial markets is expanding. Actual indicators show a dire situation in consumption and exports. Domestic passenger car sales in February plummeted by 24.6% compared to the same month last year, a decline equal to that in January 2009 (-24.6%) after the global financial crisis. Sales at department stores and discount stores, barometers of the consumer market, also dropped by 30.6% and 19.6%, respectively. Additionally, the number of Chinese tourists shrank by 76.1% compared to the same month, a larger decrease than the 69.3% drop in July 2017 caused by the Terminal High Altitude Area Defense (THAAD) incident.

Exports are similarly affected. The average daily export amount last month was $1.83 billion, down 11.7% from $2.08 billion in February last year. The Manufacturing Business Survey Index (BSI) for February was 65, down 11 points from the previous month, and the March outlook was 69, down 8 points from the previous month. The Consumer Confidence Index (CCSI) for February also fell 7.3 points to 96.9 compared to the previous month. A Ministry of Economy and Finance official said, "We will strengthen monitoring of the domestic and international ripple effects of the COVID-19 situation and the overall macroeconomy including real and financial sectors, closely examine developments, and respond proactively with all government agencies."

On the 12th, when the World Health Organization (WHO) declared COVID-19 a pandemic, the international terminal at Gimpo International Airport in Gangseo-gu, Seoul, was quiet. Photo by Moon Honam munonam@

◆COVID-19 Triggers Financial and Real Economy Crisis= Economic experts say the financial and real economy complex crisis caused by COVID-19 is "what was bound to happen." After the 2008 global financial crisis, the economy was sustained by liquidity feasts and debt, but now it is collapsing. Especially, the Korean economy had already weakened its basic strength before the COVID-19 outbreak, and with the outbreak, the real economy contracted, the market shook, and now financial shocks have been added.

According to the Korea Exchange, foreign investors have net sold more than 5 trillion won in the Korea Composite Stock Price Index (KOSPI) market alone this month as fears of the corona pandemic grew. Despite successive measures by central banks, market fears have not been quelled, and investors have instead sought to secure cash. This means that Korea was the place investors turned to for cutting losses. Shin Se-don, honorary professor of economics at Sookmyung Women's University, said, "Because the Korean economy was internally vulnerable and was considered a major outbreak country of COVID-19, foreigners used this as an opportunity to exit."

COVID-19 poured fuel on Korea's already damaged real economy. Professor Sung Tae-yoon of Yonsei University's Department of Economics explained, "The real economy, which had weakened due to rising labor costs such as shortened working hours and minimum wage increases, has taken additional hits from COVID-19." The industrial structure dependent on exports is also problematic. As COVID-19 spreads to the U.S. and Europe, concerns about trade conditions have also arisen.

If this situation prolongs, there are concerns that debts could eventually burst. Not only household debt but also repayment rates of debts by self-employed and small and medium-sized enterprises (SMEs) are sharply falling, which could lead to insolvency in financial institutions and large corporations. Korea's private credit ratio to Gross Domestic Product (GDP) was 195.0% as of the end of the third quarter last year. This means nearly twice the amount of money compared to the real economy is piled up as corporate and household debt.

Professor Sung said, "With the real economy shock from COVID-19, the global financial market plummeting, and Korea becoming isolated, the impact has become greater," and predicted, "Sequential damage will appear to self-employed, small business owners, SMEs, mid-sized companies, and companies affected by the Global Value Chain (GVC)." Professor Lee In-ho of Seoul National University's Department of Economics emphasized, "Ultimately, the financial market reflects the real market, and with concerns about large-scale bankruptcies, the real economy seems to be severely damaged."

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