Hankyung Research Institute "Even a 1%P Drop in Growth Rate Hits All Economic Agents... Measures Needed Post-COVID-19"

Household Financial Debt Up by 6.57 Million Won, New Startups Down by 7,980, Poverty Population Up by 149,000

[Asia Economy Reporter Ki-min Lee] A study has found that even a 1 percentage point drop in economic growth rate causes all economic agents to suffer a certain level of damage.

The Korea Economic Research Institute (KERI) claimed this through its analysis titled "Impact of Growth Contraction on Key Indicators by Economic Agents and Implications," and on the 13th, it emphasized the urgent need to minimize the erosion of the production base caused by the COVID-19 pandemic and to prepare measures for restoring and expanding productive capacity.

It was found that even a 1% point decrease in the economic growth rate causes damage to all economic agents including households, companies, and government/society. According to KERI's analysis, if the economic growth rate falls by 1 percentage point, ▲household financial debt increases by 6.57 million KRW and monthly income decreases by 100,000 KRW ▲7,980 new companies decrease ▲KOSPI market capitalization evaporates by 97.3 trillion KRW ▲national tax revenue decreases by 3.3 trillion KRW ▲the number of people in relative poverty increases by 149,000.

Based on the elasticity relative to GDP, when the growth rate falls by 1 percentage point, the real monthly household income decreases by 2.3%, and the real financial debt ratio increases by 6.9 percentage points in the household sector. In the corporate sector, the 'business birth rate,' which is the ratio of new companies to active companies, falls by 0.1 percentage points, and the real KOSPI market capitalization decreases by 7.2%. Furthermore, in the government and social sectors, real national tax revenue decreases by 1.1%, and the increase rate of the 'relative poverty rate,' which is the proportion of the population with income below 50% of the median income, rises by 1.9 percentage points.

KERI pointed out that to minimize the shock of the growth rate decline caused by COVID-19, it is necessary to prepare not only short-term consumption stimulation measures but also mid- to long-term measures for restoring and expanding growth potential. It also emphasized the need to support affected industries regardless of company size to prevent the economic downturn after COVID-19 from damaging the production base itself.

As mid- to long-term measures by growth factors, KERI suggested that in terms of labor input, it is necessary to respond to the reduction in labor supply caused by low birth rates and aging by enhancing the utilization of idle labor and introducing excellent foreign manpower. It also argued that job training, re-education, and expansion of flexible working hours should be implemented to increase economic participation of the elderly and women, and rigid regulations such as the 52-hour workweek should be eased to increase labor flexibility.

Regarding capital input, it pointed out the need to establish a competitive corporate tax system to promote corporate investment. This means lowering the corporate tax rate in line with global trends and expanding income and tax credits for research and development (R&D) and facility investment. Additionally, KERI added that regulatory reforms related to the emergence and development of new industries such as artificial intelligence (AI), autonomous vehicles, IoT (Internet of Things), drones, big data, and bio should be accelerated, and measures to develop technology transfer and M&A brokerage markets targeting innovative startups and venture companies should be strengthened.

Choo Kwang-ho, Director of Economic Policy at KERI, emphasized, "We must prepare comprehensive measures to prevent COVID-19 from eroding the production base and to enable rapid restoration and expansion of growth potential after COVID-19."

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