KDI "Economic Contraction Deepens and Uncertainty Expands Due to COVID-19 Spread"

April Economic Trends Publication "Europe and US Confirmed Cases Surge, Impact of Declining External Demand to Expand"

[Asia Economy Reporter Kim Hyunjung] The Korea Development Institute (KDI) has assessed that the domestic economic contraction is intensifying and uncertainty is spreading due to the spread of the novel coronavirus infection (COVID-19). In particular, as the number of confirmed COVID-19 cases rapidly increases in Europe and the United States, the negative impact of a decline in external demand is expected to gradually expand.

KDI stated this in the 'Economic Trends April Issue' published on the 16th. KDI's diagnosis of the COVID-19 impact has gradually escalated from 'economic recovery constraints (February)' → 'overall economic contraction (March)' → 'deepening contraction and expanding uncertainty (April)'.

It especially mentioned the recent contraction in the labor market. KDI diagnosed, "In February, total industrial production decreased due to the impact of COVID-19, and the labor market also contracted mainly in the service sector," adding, "In the service sector, production and employment sharply declined mainly in tourism and travel-related industries, which involve a lot of face-to-face contact."

In fact, total industrial production in February increased by 4.9% due to an increase in working days (4 days more) caused by the Lunar New Year holiday movement, but the average for January-February increased by 2.0% and decreased by 3.5% compared to the previous month, showing a sluggish trend. Manufacturing shipments decreased by an average of 0.8% in January-February, with rising inventory ratios and declining average operating rates, indicating a demand decrease trend. However, KDI judged, "In March, the negative impact of COVID-19 on manufacturing remains limited as export sluggishness eased mainly in automobiles and semiconductors."

As COVID-19 spreads to major countries worldwide, the negative impact is expected to gradually deepen. KDI explained, "Production disruptions and social distancing in the United States and Europe are expected to gradually shrink external demand, and there is also a possibility of recurring production declines due to disruptions in the global supply chain," adding, "Due to the sharp decrease in foreign tourists and domestic concerns about infection, contraction in the service sector is intensifying, especially in accommodation and food services, as well as arts, sports, and leisure services."

In fact, the total industry BSI (65→54) and seasonally adjusted manufacturing BSI (67→56) in March fell to levels just before the 2008 financial crisis, showing a significant contraction in economic sentiment. As major countries expanded entry bans, the passenger growth rate at Incheon Airport sharply plummeted in March (-89.6%), and tourists to Jeju Island also sharply decreased in March for both domestic (-53.5%) and foreign (-97.3%) visitors compared to the previous month.

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