Korea Institute for International Economic Policy: "South Korea's Real GDP Decreases by up to 1.02% Due to COVID-19"

China is expected to decrease by up to -2.03%, the United States by -0.72%

[Sejong=Asia Economy Reporter Kim Hyunjung] It is forecasted that South Korea's real GDP could decrease by up to 1.02% due to the spread of the novel coronavirus infection (COVID-19) crisis.

The Korea Institute for International Economic Policy (KIEP) published a report on the 13th titled "The Impact of the International Spread of Coronavirus Infection (COVID)-19 on the Economy," estimating that South Korea's real GDP will decline by 0.51% to 1.02%, and the world's real GDP by 0.57% to 1.13%, depending on the extent of COVID-19's spread.

KIEP first estimated the labor supply reduction rate by setting the proportion of the labor force directly and indirectly affected by the COVID-19 spread at 10% (Scenario 1) and 20% (Scenario 2) from the supply side. On the demand side, it analyzed related figures reflecting the contraction of consumer sentiment toward tourism, leisure, and other sectors caused by the epidemic spread, regardless of income and price changes. Additionally, from the trade perspective, it considered that if entry restrictions, customs clearance delays, and cargo transport reductions persist, trade costs would rise due to increased transaction costs in the global value chain of production.

According to the analysis results, under Scenario 1, South Korea's real GDP is expected to decrease by 0.51%, and under Scenario 2, by 1.02%. China is projected to decline by -0.91% and -2.03%, the United States by -0.36% and -0.72%, and Japan by -0.38% and -0.74%, respectively. Globally, the decreases are expected to be -0.57% and -1.13%.

Above all, due to the decrease in inbound foreign tourists and the increase in countries restricting entry of Korean travelers (123 countries and regions as of the 12th), air routes to and from South Korea are shrinking, leading to a significant drop in sales in related industries. In fact, the number of visitors to South Korea using flights in February decreased by 45.1% compared to the same month last year, and accordingly, the inflow of foreign tourists into the country is also expected to have sharply declined. According to the scenario analysis by the International Civil Aviation Organization (ICAO), the number of international passengers in the first quarter of 2020 is expected to decrease by 5.3 million to 6 million, estimating that the revenue loss of airlines operating Korean routes will reach approximately 1.1 billion to 1.2 billion USD.

Furthermore, KIEP anticipated that the decline in foreign tourists would shrink exports of travel-related services and medical services, delay the entry of foreign students leading to reduced education fee income and living expenses, decrease consulting fee income due to restrictions on professional service supply, and cause management disruptions in overseas investments and overseas construction by domestic companies. It explained, "With over 100 countries restricting entry of travelers from South Korea, it will be difficult for Korean professional service personnel to supply overseas services for the time being," and added, "There is a high possibility of management disruptions in overseas investment and overseas construction sectors centered on Korean companies."

In particular, domestically, consumer anxiety due to the spread of COVID-19 is expected to manifest as refraining from outdoor activities and psychological contraction. KIEP forecasted, "Expenditures related to the use of densely populated facilities such as cultural, entertainment, and leisure expenses, travel expenses, dining out, and clothing expenses will decline," and "As the number of outings decreases and time spent indoors increases, the proportion of consumption of goods and services through e-commerce will naturally rise." It added, "Decreases in domestic demand and labor supply, contraction of overseas demand due to the global pandemic, and travel restrictions will negatively affect the domestic economy through the global value chain structure."

As a response, the need to strengthen international support and cooperation was emphasized. KIEP stated, "It is necessary to strengthen organic networks among governments and international organizations, establish global health policies, and promote international cooperation to support low-income countries," and stressed, "Public health risks should be classified and managed as national disaster risks, and the paradigm of infectious disease response should be shifted by establishing monitoring and analysis systems for public health risks."

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