"COVID-19, Widespread Shock...Concerns Over Recession in Major Countries"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Hyunseok Yoo] Unlike previous infectious diseases, the novel coronavirus infection (COVID-19) is spreading rapidly worldwide, raising concerns that its impact will be greater and could potentially lead to economic recessions in major countries.

According to the report titled "The Impact of Epidemic Infectious Diseases on the Economy and Industry" released by the Korea Institute for Industrial Economics and Trade on the 22nd, during past outbreaks of SARS (Severe Acute Respiratory Syndrome) and MERS (Middle East Respiratory Syndrome), the slowdown in the service sector was particularly noticeable in South Korea.

Since SARS and MERS were localized infectious diseases, the service sector, which is more domestic demand-oriented, was more severely affected than the export-driven manufacturing sector. In the case of SARS, the largest damages were seen in food and lodging, transportation, and distribution, in that order, while during the MERS outbreak, the food and lodging industry was hit the hardest.

However, in both the SARS and MERS cases, regardless of the magnitude of the shock, the impact was relatively short-term, and industrial recovery was rapid after the situation ended, resulting in minimal long-term effects.

But COVID-19 shows a different pattern from SARS and MERS. Unlike the short-term and localized outbreaks of SARS and MERS, COVID-19 is spreading rapidly worldwide, making it difficult to predict when it will subside. The report pointed out, "Considering the recent vulnerabilities of the global economy, the spread of COVID-19 has a considerable possibility of leading to economic recessions in major countries." Currently, the global economy is recording the highest debt ratios ever.

The level of damage caused by COVID-19 is expected to vary by industry but is likely to be more widespread than during SARS and MERS.

Of course, service industries vulnerable to infectious diseases such as food and lodging, tourism and leisure, and transportation are still expected to suffer the greatest losses. Essential goods and durable consumer goods are expected to experience relatively less impact, according to the report. The magnitude of the shock is estimated to be comparable to or greater than the levels seen in Hong Kong, Taiwan, and Singapore, which suffered the most during SARS, based on the current spread.

The report advised, "Primarily, the highest priority in resource allocation should be to suppress the spread of the disease," adding, "In some cases, resource allocation through government administrative functions equivalent to a wartime economic system may also need to be mobilized." It further stated, "Economic policies for the real economy should respond in three ways: boosting aggregate demand to prevent transition into a recession, providing liquidity support to prevent profitable bankruptcies of companies and self-employed businesses in affected industries, and offering livelihood support to workers in affected industries and vulnerable groups."

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