MoEF "Rapid Consumption Contraction Due to COVID-19 Spread... Car Sales Decline at Global Financial Crisis Level" (Update)

Recent Economic Trends March Issue

February Passenger Car Sales Down 24.6%

Department Store and Discount Store Sales Decrease by 30.6% and 19.6% Respectively

Decline in Chinese Tourists Greater than During THAAD Incident

Kim Young-hoon, Director of Economic Analysis at the Ministry of Economy and Finance, is holding a background briefing on the "Recent Economic Trends as of March 2020" on the morning of the 13th at the Government Complex Sejong in Sejong City.
[Photo by Yonhap News]

[Sejong=Asia Economy Reporter Ju Sang-don] It has been revealed that domestic consumption sharply contracted due to the spread of the novel coronavirus infection (COVID-19). The decline in passenger car sales fell to levels seen during the global financial crisis, and the decrease in Chinese tourists was even greater than during the aftermath of the Terminal High Altitude Area Defense (THAAD) incident. As a result, the government's official economic assessment in the 'Recent Economic Trends' report lost its positive evaluation after just one month.

On the 13th, the Ministry of Economy and Finance diagnosed in the March issue of 'Recent Economic Trends (Green Book)' that "due to the spread of COVID-19, our economic activities and economic sentiment are contracting, and uncertainties in the real economy and financial markets are expanding."

First, domestic consumption took a direct hit. In February, domestic passenger car sales plummeted 24.6% compared to the same month last year. This decline matches that of January 2009 (-24.6%), which occurred after the global financial crisis. Additionally, sales at department stores and discount stores fell by 30.6% and 19.6%, respectively.

In particular, the number of Chinese tourists dropped by 76.1% compared to the same month last year. This decrease is larger than the 69.3% decline seen in July 2017 following the THAAD incident.

Kim Young-hoon, head of economic analysis at the Ministry of Economy and Finance, explained, "Since the 19th of last month, when the number of confirmed COVID-19 cases increased, consumption in the service sector has declined," adding, "The shock to the consumption sector was temporary but significant."

As consumption sharply declined due to the impact of COVID-19, the phrase "economic improvement trend" was removed from the Green Book. Previously, the Ministry of Economy and Finance had excluded the term "sluggish" for four consecutive months after having used it for seven months from April to October last year, and had changed the diagnosis of "adjustment phase"?which was only mentioned for exports and construction investment?to an overall level of "improvement" and "recovery." Kim said, "The economic impact of COVID-19 on our economy has become inevitable, and uncertainty in the production path has increased. Under these circumstances, it is difficult to maintain the expression of an improvement trend." However, he added, "To conclude that the 'gradual improvement trend has completely broken' requires observing future indicators a bit more. It is difficult to judge based solely on consumption indicators."

In January this year, production and construction investment increased, but industrial production, retail sales, and facility investment decreased. Production saw a slight increase of 0.1% across all industries, as industrial production (down 1.3% month-on-month) declined but service sector production rose by 0.4%. In terms of expenditure, retail sales (-3.1%) and facility investment (-6.6%) decreased, while construction investment (3.3%) increased.

Exports in February increased by 4.5%, influenced by an increase of 3.5 working days compared to the same month last year. However, the average daily export value fell by 11.7%, from $2.08 billion in February last year to $1.83 billion this February.

Economic sentiment also contracted significantly. The Consumer Sentiment Index (CSI) in February was 96.9, down 7.3 points from the previous month. The Manufacturing Business Survey Index (BSI) for February was 65, down 11 points month-on-month, and the March outlook was 69, down 8 points from the previous month.

Employment continued to increase, and inflation maintained a rise in the 1% range for two consecutive months. In February, the number of employed persons increased by 492,000 year-on-year, mainly in the service sector, and the unemployment rate fell by 0.6 percentage points year-on-year to 4.1%. Consumer prices in February rose 1.1% year-on-year, as increases in agricultural, livestock, fishery products, and personal services slowed, but petroleum prices rose. Core inflation, which shows the underlying trend of prices, also rose by 0.6%.

The financial market showed rapid declines in stock prices and government bond yields from late February, while the exchange rate continued to fluctuate.

Kim emphasized, "Externally, concerns about the global impact of COVID-19 are growing, leading to downward revisions of global economic growth forecasts including major countries, increased volatility in commodity and financial markets, and expanded downside risks to the global economy. We will strengthen monitoring of the domestic and international impact of the COVID-19 situation and the overall macroeconomy including real and financial sectors, closely examine developments, and respond proactively with all government agencies."

However, he showed a cautious response regarding downward revisions of economic growth forecasts. Kim said, "Investment banks (IBs) adjust growth forecasts quickly and periodically based on market reactions, but the government has a related process. Sudden downward revisions by the government could cause another shock, so I think there will be no adjustment at this point."

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