"Korea's Quarantine Measures Succeeded, but Economic Recovery Expected to Be Slow"

Oxford Economics "Export-oriented structure leads to impact... Worse than India's recovery"
Economic indicators have held up so far... Some point out export impact is hidden in the data

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] While South Korea's response to the novel coronavirus infection (COVID-19) has been evaluated as successful, there are concerns about whether it can also lead the way in 'economic quarantine.' Since there was no large-scale lockdown (movement restrictions), the economy has relatively held up well in terms of indicators, but due to the characteristics of South Korea's economic structure, the rebound speed after COVID-19 is expected to be slow. It is an open structure vulnerable to exports, so the impact is significant, while its position is ambiguous to gain the 'de-China' reflexive benefits of overseas companies.

On the 6th, the UK economic analysis firm Oxford Economics stated, "South Korea's response to the COVID-19 pandemic has been generally successful, and the risk of COVID-19 within South Korea will be minimal," but also predicted, "South Korea's economic recovery will be long and slow, and India's recovery pace will surpass South Korea's in Asia." It added, "Considering South Korea's dependence on global trade, its vulnerability to the pandemic's impact is much greater." Concerns about the resurgence of the US-China trade war are also growing, which could cause significant damage.

Oxford Economics pointed to India as the country expected to have a rapid economic rebound in Asia after COVID-19. Although the economy is currently paralyzed due to movement restrictions, it is said that it can grow rapidly once these are lifted. There have also been continuous discussions that India could benefit if the global value chain (GVC) changes after the crisis. Professor Son Seongwon of Loyola Marymount University in the US explained, "Supply chains that were overly dependent on China have begun to diversify due to COVID-19," adding, "From automobiles to computer parts, especially low-tech companies are expanding into India, Indonesia, Vietnam, and Thailand." For countries where advanced technology companies can develop supply chains, Taiwan, South Korea, Singapore, and Malaysia were mentioned.

In fact, looking at the indicators, South Korea's economic impact from COVID-19 is less severe compared to other countries. South Korea's first-quarter gross domestic product (GDP) growth rate recorded -1.4% quarter-on-quarter. Although it is the lowest level since the fourth quarter of 2008 (-3.3%), the decline in growth rate is smaller compared to the US (-4.8%), China (-6.8%), and Germany (-1.9%).

According to the manufacturing Purchasing Managers' Index (PMI), which gauges economic trends by surveying purchasing managers of companies conducted by market research firm IHS Markit, South Korea's decline over the past three months was 8.2 points. In contrast, the US manufacturing PMI in April fell by 12.4 points just one month after COVID-19 spread intensified in March (48.5). The Eurozone (19 countries using the euro) also plunged sharply from 44.5 to 33.4 during the same period. A Bank of Korea official explained, "Looking only at South Korea, it is true that there is no good news for companies, but so far the shock in indicators from the US and Europe has been greater," adding, "This is because there were no full-scale lockdown measures."

However, it is difficult to conclude that South Korea's economic recovery speed will be fast. The extent of export damage caused by the global economic recession is still hidden in the indicators. Joe Hayes, an economist at IHS Markit, said, "South Korea, an export-driven economy, suffered massive damage in April, and production such as automobiles sharply declined," adding, "In this situation, it seems difficult for South Korean policymakers to prepare effective economic stimulus measures."

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