COVID-19 Setbacks Shift Recovery from 'V-Shaped to U-Shaped to L-Shaped'... Will Economic Bottom Prolong? (Comprehensive)

Government: "V-shaped recovery unlikely... Concerns over even L-shaped path"
Indicates additional measures like 4th and 5th rounds... Supplementary budget bill faces ruling and opposition party conflict in National Assembly

On the 16th, the KOSPI index started higher but showed a downward trend in the early session, as dealers were busy working in the Hana Bank dealing room in Euljiro, Seoul. Photo by Mun Ho-nam munonam@

[Sejong=Asia Economy reporters Kim Hyunjung and Jang Sehee] Concerns are deepening over an 'L-shaped recession,' where the economic downturn prolongs due to the global spread of the novel coronavirus disease (COVID-19). The government initially expected the COVID-19 situation to enter a stabilization phase starting in March, but now it is focusing on preparing countermeasures for a prolonged crisis.

On the 16th, Kim Yong-beom, First Vice Minister of Strategy and Finance, held a macroeconomic and financial meeting at the Bankers' Hall in Seoul and stated, "A V-shaped global economic recovery, as seen in past infectious disease cases, will not be easy," adding, "There are concerns about a U-shaped, or even an L-shaped, recovery path." Until now, the government had hoped for a 'V-shaped' or a somewhat slower 'U-shaped' recovery scenario, expecting the economy to rebound quickly after a temporary shock caused by the unexpected COVID-19 outbreak. If the number of new confirmed cases could be controlled to a manageable level within the first quarter, there was strong intent to consider the second quarter as the start of a full recovery. The Bank of Korea also revised this month's economic growth forecast from 2.3% to 2.1%, assuming that COVID-19 would peak in March and then subside.

◆Government "Preparing 4th and 5th Countermeasures"= However, as COVID-19 has escalated to a global pandemic level, the domestic financial and real economies face the risk of being hit again due to shocks in global financial markets. Reflecting this situation, the government plans to prepare response measures assuming an "unprecedented level of crisis." At the meeting, Vice Minister Kim emphasized, "We cannot rule out the possibility that the prolonged situation will deliver complex shocks to both the real economy and the financial sector," and added, "We will review policy tools assuming a compound crisis."

He also hinted at additional measures to stabilize people's livelihoods. Following the 4 trillion won emergency support for affected industries and sectors (1st phase), and the 16 trillion won package support that the executive branch and related agencies can independently implement (2nd phase), as well as the supplementary budget of about 11.7 trillion won currently pending in the National Assembly (3rd phase), the government plans to introduce 4th and 5th countermeasures. Vice Minister Kim explained, "The government is mobilizing all available policy tools step by step," and added, "Extraordinary financial support measures for companies and small business owners to endure this period are urgently needed, and if necessary, we will consider 4th and 5th phase response plans depending on future circumstances."

[Image source=Yonhap News]

◆Opposition and Ruling Parties Still Divided Over Supplementary Budget Increase= This statement is interpreted as being mindful of the government's supplementary budget approval schedule, which is set for the 17th, the last day of the extraordinary session of the National Assembly. Since the Budget and Accounts Committee of the National Assembly will review increases and decreases on the 16th, the government is considering additional responses, making smooth passage through the National Assembly crucial at this time.

Regarding the size of the supplementary budget, opinions remain divided even after a morning meeting among the three party floor leaders of the Budget and Accounts Committee. While there is consensus on the urgent need to pass the supplementary budget in the plenary session, there are still significant differences in views on securing funding and the budget size. The Democratic Party insists on minimizing cuts by project and increasing the budget by about 6 trillion won. Jeon Hae-cheol, Democratic Party floor leader of the Budget and Accounts Committee, stated, "Since Daegu and Gyeongbuk's Cheongdo, Gyeongsan, and Bonghwa have been designated as special disaster areas, support for these areas is fully possible under the relevant laws."

The United Future Party argues for cutting employment-related projects and changing some projects to better suit their purposes. Lee Jong-bae, United Future Party floor leader of the Budget and Accounts Committee, said, "We demanded the government increase the Daegu and Gyeongbuk budget from the original 620 billion won to 2.4 trillion won," and added, "We also requested an additional 2 trillion won to be provided as a child care allowance in the form of an idolbom (childcare) project." He further explained, "To minimize national bond issuance, we propose cutting some parts and reallocating those funds to increase other parts."

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