"South Korea's GDP Falls 0.37% if China’s Imports Decrease by 20%"

Deloitte Group "Need to Improve Corporate Cash Flow and Restructure Portfolio"

[Asia Economy Reporter Minji Lee] Opinions have emerged that the slowdown in China's manufacturing production due to the spread of the novel coronavirus infection (COVID-19) will affect the decrease in South Korea's Gross Domestic Product (GDP).

On the 16th, Deloitte Korea Group predicted in its report "Corporate Response Measures to COVID-19" that as production in China, which accounts for 29% of global manufacturing, faces disruptions, the productivity of all countries dependent on China's supply chain, including South Korea, could decline. According to Deloitte's research, if China's imports decrease by 20%, South Korea's GDP is expected to drop by 0.37%.

Deloitte Group stated, "China has announced economic stimulus through liquidity expansion and infrastructure investment, but it is insufficient to resolve global supply chain issues," adding, "If China's production disruptions persist, a global economic recession beyond just an economic slowdown is expected."

Furthermore, Deloitte Group pointed out that "the automobile, offline retail, department stores, aviation, travel, and accommodation industries are expected to be directly hit by COVID-19." The economic adverse effects caused by the rapid spread of COVID-19 are materializing. South Korea's industries are also expected to continue experiencing sluggishness in the automobile industry, offline retail, aviation, travel, and accommodation sectors.

In February, Hyundai Kia Motors' wholesale sales in China plummeted by 95% compared to the same month last year, and with the spread of COVID-19 in Europe and the United States, exports are expected to become even more difficult. The aviation and travel industries are also anticipated to be significantly affected. As COVID-19 spread became more pronounced, the number of outbound travelers decreased by 13.7% compared to the previous year, and with an increasing number of countries imposing entry restrictions on Koreans from early March, the crisis is expected to deepen. Offline retail sales also declined as consumers refrained from going out for extended periods, with department stores and large supermarkets recording sales decreases of 10% and 12%, respectively, in February compared to the previous year.

Corporate sentiment has also fallen to recession levels. According to the report, the business outlook index for this month recorded 78.5, the lowest in 13 months since February 2019. A business outlook index below 100 means that more companies expect the economy in the current quarter to worsen compared to the previous quarter. Additionally, survey results showed that 50% of Chinese companies anticipate liquidity shortages causing management difficulties within three months. According to the Korea Federation of SMEs, 70% of 300 domestic small and medium-sized enterprises have already suffered direct or indirect damage due to COVID-19.

Accordingly, Deloitte forecasted in the report that to overcome the crisis, companies must secure liquidity and profitability through △strengthening cash flow and working capital management and improving profitability △increasing cash flow △attracting investment and financing. Furthermore, for effective management, mid- to long-term plans such as △reexamining supply chain frameworks △restructuring business portfolios △considering digital transformation are necessary.

Oh Seong-hoon, Head of Client Industry at Deloitte Korea Group, said, "This report was published to introduce proactive response measures for companies facing difficulties," adding, "We plan to share various information that can help companies' crisis management activities."

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