[Economic Outlook] How COVID-19 Affects April Inflation... Q1 Tax Revenue Figures Announced

[Image source=Yonhap News]

[Asia Economy Reporter Kim Bo-kyung] Attention is focused on whether the impact of the novel coronavirus infection (COVID-19) on consumer prices increased last month. There is also interest in how much national tax revenue was collected in the first quarter of this year and the scale of household consumption expenditure and deficit households last year.

The Statistics Korea will announce the consumer price trends for April on the 4th. The consumer price index in March showed a rise in the 1% range for three consecutive months. Due to concerns over the spread of COVID-19 and increased 'stay-at-home' time, demand for household food ingredients rose, causing egg prices to increase by 20.3%, pork by 9.9%, livestock and seafood prices by 6.7% and 7.3% respectively, and processed food prices also rose by 1.7%.

Despite many factors driving up dining-out prices early in the year, the price increase was limited to 0.9% as people refrained from going out, while hotel accommodation fees (-5.2%) and condo usage fees (-3.1%) declined.

The Ministry of Economy and Finance will publish the May issue of the Monthly Fiscal Trends on the 7th, which includes the scale of national tax revenue for the first quarter. National tax revenue for January and February amounted to 46.8 trillion won, 2.4 trillion won less than the same period last year. The deficit in the managed fiscal balance, which reflects the government's actual fiscal condition, recorded the largest deficit since statistics began as of February.

Statistics Korea will also release the results of the 2019 Household Trends Survey (expenditure section) on the same day. In 2018, households in the lowest income bracket earning less than 1 million won per month spent an average of 1.1 million won monthly, running a deficit. The bottom 20% income households earned 1.16 million won, while the top 20% earned 4.28 million won, indicating persistent consumption polarization.

Deputy Prime Minister for Economy Hong Nam-ki attended the full meeting of the National Assembly's Strategy and Finance Committee on the 29th of last month and received a report from First Vice Minister Kim Yong-beom before the meeting started. Photo by Yoon Dong-joo doso7@

On the same day, the Bank of Korea will announce the provisional balance of payments statistics for March. Up to March, the export shock due to COVID-19 was reflected only to a limited extent, and the current account balance is expected to maintain a surplus trend. The customs-based trade balance for March, announced earlier, showed a surplus of 5.04 billion dollars.

The Bank of Korea plans to disclose foreign exchange reserves as of the end of April. As of the end of March, foreign exchange reserves stood at 400.21 billion dollars, down 8.96 billion dollars from the previous month. The decrease was the largest since November 2008 (11.75 billion dollars) during the financial crisis.

With the dollar's strength easing compared to the previous month in April, there is a possibility that the dollar-converted value of foreign currency assets denominated in other currencies increased.

The government will launch a 5.5 trillion won rapid corporate bond underwriting system. This system allows companies to issue corporate bonds privately to repay maturing bonds, with the Korea Development Bank underwriting 80% to reduce the companies' repayment risk.

Unlike the Bond Market Stabilization Fund targeting high-grade corporate bonds (AA grade or higher) and the Korea Development Bank’s corporate bond refinancing program (A grade or higher), the rapid underwriting system support extends to BBB grade bonds.

Efforts are also accelerating to establish a 40 trillion won Industrial Stability Fund. The amendment to the Korea Development Bank Act, which provides the legal basis for the fund's establishment, passed the National Assembly on the 29th of last month.

Accordingly, financial authorities will discuss follow-up measures such as revising enforcement ordinances and preparing specific support targets and criteria, aiming to activate the fund within May.

Details of the second emergency loan program worth about 10 trillion won will also be discussed. The second emergency loan (with a limit of 10 million won per case) has an interest rate of around 3-4% per annum, higher than the first emergency loan product (1.5% per annum).

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