[Economic Outlook] Q1 Growth Rate Announcement... Contraction Expected Due to COVID-19

[Asia Economy Reporter Kim Eun-byeol] This week, South Korea's first-quarter economic growth rate will be announced. Amid expectations of negative growth due to the impact of the novel coronavirus infection (COVID-19), attention is focused on how large the negative growth will be. Additionally, at the emergency economic meeting chaired by President Moon Jae-in, a package of employment stabilization policies and support measures for key industries will be finalized and announced.

According to the Bank of Korea on the 18th, the Bank will release the preliminary figure for the first quarter's real Gross Domestic Product (GDP) on the 23rd. Following last year's first quarter economic contraction of -0.4% compared to the previous quarter, negative growth is also expected for this year's first quarter.

As the Chinese government implemented strict movement restrictions from late January due to the spread of COVID-19, negative effects on the domestic real economy became visible from February. In particular, from late February, the number of confirmed cases surged mainly in Daegu and Gyeongbuk, causing a sharp contraction in domestic demand centered on the service sector, marking the full onset of the economic shock caused by COVID-19.

The strong growth rate of 1.2% in the fourth quarter of last year is also expected to act as a base effect, pulling down the first quarter growth rate. Major foreign investment banks (IBs) and forecasting institutions predict that South Korea's first-quarter growth rate will fall to around -1% compared to the previous quarter.

At an economic outlook briefing in February, the Bank of Korea stated, "If real economy indicators slow down in February and March, it cannot be ruled out that the growth rate will fall below last year's first quarter (-0.4%)." According to the 'March 2020 Business Survey Index (BSI)' released by the Bank on the 31st of last month, the BSI for overall industry business conditions dropped 11 points from the previous month to 54. This is the lowest figure since February 2009 during the global financial crisis. Also, the manufacturing sector, a core industry of our economy, recorded a BSI of 56, down 9 points from the previous month.

If the prolonged COVID-19 situation leads to a surge in unemployment in the second quarter, private consumption could sharply decline, causing further damage. In particular, as COVID-19 spreads worldwide, there is analysis that the export sector may also be hit starting from the second quarter.

Prior to this, the Bank of Korea will release statistics on residents' foreign currency deposits for March on the 20th. In February, due to the weak won, companies and individuals sold off dollars, reducing residents' foreign currency deposit balances by $6.47 billion compared to the previous month. On the 21st, the Bank will release the results of its financial institution loan behavior survey, which will provide insights into changes and prospects in household and corporate lending attitudes in the banking sector following the COVID-19 outbreak.

The Bank will announce the Producer Price Index for March on the 22nd. Due to the impact of COVID-19, demand related to the service sector has decreased, with the producer price inflation rate in February showing 0.7% year-on-year.

President Moon Jae-in will finalize and announce a package of employment stabilization policies and support measures for key industries at the emergency economic meeting next week to respond to employment shocks caused by COVID-19.

The employment stabilization policy package is expected to include extraordinary job protection and stabilization measures such as employment retention plans across small business owners, small, medium, and large enterprises; unemployment measures for those who lost jobs; emergency and new job creation plans to increase work opportunities; and livelihood stabilization measures for those in blind spots.

The support measures for key industries are expected to include assistance for the aviation industry, which has been hit hard and is facing a crisis due to COVID-19. Key industries refer to sectors that form the foundation of the national economy, such as machinery, energy, shipbuilding, automobiles, electronics, semiconductors, aviation, and shipping. Industries like automobiles, petroleum refining, and shipping, which have faced difficulties since the COVID-19 outbreak, also require urgent support.

The government plans to support key industry companies separately from the 100 trillion won scale livelihood and financial stability package program.

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