"Consumption Recovery" VS "Still Too Early"... South Korean Economy at a Crossroads in May

Department Store Sales Surge and Consumer Sentiment Revives

Long-Term Recession Inevitable Without Export Rebound, Experts Warn

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[Sejong=Asia Economy Reporter Joo Sang-don] Starting from the 6th, the implementation of everyday social distancing, or the everyday quarantine system, is expected to ease not only the daily lives that have been restrained due to the spread of COVID-19 but also overall economic activities. With the commencement of emergency disaster relief fund payments, there is growing optimism that consumer sentiment will also begin to recover. On the external front, the gradual lifting of restrictions imposed after COVID-19, especially in the US and Europe, is another positive factor for the Korean economy. Some predict that the economy, which plummeted after COVID-19, will bottom out around May. However, concerns remain as export prospects are still uncertain, which could deepen the economic slump.

Experts unanimously agree that domestic consumption is likely to recover starting this month. On this day, Professor Sung Tae-yoon of Yonsei University’s Department of Economics said in a phone interview with Asia Economy, "As COVID-19 is calming down, a recovery centered on face-to-face consumption will appear," adding, "Consumption was difficult in the first quarter, but this will be reflected, leading to overall improvement in the second quarter."

Actual consumption recovery is also confirmed by figures. During the recent golden holiday period, just before the end of social distancing, sales at distribution companies such as department stores, outlets, and convenience stores increased significantly. Between April 30 and May 3, the start of the holiday, department store sales rose by about 10% compared to the same period last year. Suburban outlets saw sales increase by approximately 25-41%.

The resumption of economic activities in some US states and European countries including Italy may also help the domestic economic recovery trend. On expectations of the US economy reopening, the won-dollar exchange rate showed a downward trend on this day. The KOSPI also started higher.

While experts expect consumption improvement to aid domestic economic recovery, they agree that "without an export rebound, the effect will be limited." Professor Kang Sung-jin of Korea University’s Department of Economics emphasized, "Since consumption does not lead the Korean economy, it is difficult to expect long-term recovery from consumption recovery alone," adding, "Ultimately, for a sustained economic recovery, export recovery following the calming of COVID-19 in the US and Europe is necessary."

Professor Kim Sang-bong of Hansung University’s Department of Economics also expressed concern, saying, "Without export recovery, a long-term recession is inevitable." However, Professor Sung noted, "The direction of the Korean economy depends on exports, which is beyond our control," adding, "Realistically, the government has no choice but to continue efforts to improve the domestic economy as it is doing now."

The government is also focusing policy measures primarily on stimulating domestic consumption. Although an export rebound is more crucial for the Korean economy’s sustained recovery, the external situation is challenging, making immediate recovery difficult to expect. Prime Minister Chung Sye-kyun emphasized early budget execution for economic revitalization at the Central Disaster and Safety Countermeasure Headquarters (CDSCH) meeting on this day. He said, "In the difficult situation of exports due to COVID-19, efforts to fill the export gap through domestic investment and consumption stimulation are important," urging, "Local governments and the central government should join forces and actively work towards economic normalization through public construction orders (such as office building expansions and renovations) and early budget execution."

Earlier, on the 4th, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki stressed at an executive meeting, "Prepare special measures promptly for domestic demand activation, consumption stimulation, and normal economic activities," adding, "Ensure that the second half economic policy direction, the third supplementary budget, and the Korean New Deal plan are announced as scheduled in early June, and complete preparations swiftly over the next two weeks."

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