March Indicators Hit Bottom... April Will Be an Even More Ruthless Month

[Asia Economy Reporter Kwangho Lee] The decrease in consumption and production in March is analyzed as a result of nationwide social distancing measures implemented to prevent the spread of the novel coronavirus infection (COVID-19). The impact of COVID-19 spreading to major export countries such as the United States and Europe is expected to be fully reflected from April. The government expects the effects of various policies recently introduced to appear from May.

On the 29th, Hyungjun Ahn, Director of Economic Trend Statistics at Statistics Korea, forecasted during the briefing on the "March 2020 Industrial Activity Trends" that "In April, the spread of COVID-19 in major export countries such as the United States and Europe will significantly affect our manufacturing exports and production."

A notable indicator in the March industrial activity trends released that day is that the coincident composite index, which reflects the current economic condition, and the leading composite index, which can predict future trends, recorded their largest declines since the financial crisis. The coincident index's cyclical component fell by 1.2 points from the previous month, marking the largest drop in 11 years and 3 months, while the leading index dropped by 0.6 points, the largest decrease in 12 years and 1 month.

The coincident composite index is calculated by aggregating seven indicators that move in line with the actual economy, such as production and consumption, while the leading composite index is calculated by aggregating seven indicators that precede the economic cycle, such as construction and machinery orders and economic sentiment indices. In other words, the sharp decline in both indices indicates that the domestic economy is not in good condition.

As per Statistics Korea's outlook, the most concerning sector going forward is exports. Since domestic demand, including consumption, is struggling, if the spread of COVID-19 in major export countries like the United States and Europe does not subside, adverse effects on our economy are inevitable.

In fact, South Korea's average daily export value increased by 4.6% in January but decreased by 11.9% in February and 6.4% in March as COVID-19 spread, and further plunged by 16.8% based on data from the 1st to the 20th of this month. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, expressed concern over this situation at the Foreign Economic Ministers' Meeting held on the 27th, stating, "The sharp decline in global trade due to COVID-19 is a tremendous shock to our export-oriented economy."

On the same day, Kim Yong-beom, First Vice Minister of the Ministry of Economy and Finance, hinted at the possibility of a trade deficit in the "April Trade Trends" report to be announced on April 1 during a briefing on the results of the 1st Emergency Economic Central Countermeasures Headquarters (Economic Central Headquarters) meeting. Vice Minister Kim explained, "Although it is too early to predict the results, if the current trend continues, there is a high possibility of recording a trade deficit for the first time in 99 months since January 2012."

He added, "Domestic demand and manufacturing production and investment activities are showing better trends than other countries, so imports have decreased less than exports," and "Even if a temporary trade deficit occurs, it should not be viewed solely as a negative sign."

Vice Minister Kim particularly mentioned, "The domestic economy continues to face difficulties centered on the livelihood economy, and with export sluggishness due to worsening external conditions becoming more pronounced in April, downside risks are expanding," adding, "Economic sentiment indicators have also declined for three consecutive months, indicating that uncertainty about the economic situation remains high."

He predicted, "If the transition to daily quarantine occurs in May, service industries and retail sales will increase," and "The effects of policies such as disaster relief income will also sequentially appear in May."

The government expects various measures to be reflected starting in May. Director Ahn observed, "After the transition to daily quarantine in May, improvements in service industries and retail sales will become more pronounced," and "Policy demands such as disaster relief income will also be sequentially reflected in the May industrial trend statistics."

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