Is the Second Quarter the Bottom... June as the Turning Point for the Korean Economy

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] As the U.S. employment indicators, which had been sluggish since the outbreak of the novel coronavirus infection (COVID-19), rapidly improve, raising expectations for a 'V-shaped rebound' in the global economy, it is forecasted that the domestic economy will reach a turning point this month. The various economic policies and forecasts released by the government assume that the spread of COVID-19 will subside within the first half of the year, and since there are no measures in place to respond to a resurgence, June's quarantine measures will be a critical juncture determining whether domestic demand rebounds or stagnates.

According to the Ministry of Economy and Finance on the 8th, the economic growth rate for this year (0.1%) presented when the government announced the second half economic policy direction earlier this month is based on the assumption that the COVID-19 situation will calm down within the first half of the year and that no resurgence will occur in the second half. The 'Korean New Deal' aimed at creating more than 550,000 jobs and industrial innovation is also based on this context. The government stated that it has not prepared a separate contingency plan in case the number of infections continues to increase at the current level or higher in the second half. It also clearly stated that it is not considering the allocation of a 4th supplementary budget or the payment of a second emergency disaster relief fund.

The 'worst-case scenario' pointed out by domestic private economic research institutes and economic experts in March, when the number of new COVID-19 cases peaked, was that the spread would not stop even within the first half of the year. The cessation of the spread means that at least social distancing would end, and social and economic activities, including commuting and attending school, would return to normal tracks. Experts agreed that if the worst-case scenario materializes, it would be difficult to shift to a recovery trend with only fragmented fiscal expansions such as disaster relief payments.

However, the government's criterion for transitioning from social distancing to everyday distancing (everyday quarantine), which is 'fewer than 50 daily COVID-19 cases,' was broken as of midnight on the 7th based on the numbers in the metropolitan area alone. Cluster infections have been rapidly occurring in door-to-door sales companies in Seoul, ping-pong halls, and metropolitan area churches, signaling a return to social distancing. Additionally, from this month, offline attendance for elementary, middle, and high school students has begun in earnest, international travel remains restricted, and the summer vacation season is approaching. This means that the volume of movement could surge while the spread has not fully subsided, complicating infection routes.

In the global market, the scenario of a second wave of COVID-19 in this fall and winter and the resulting lockdown measures are considered the most likely. According to a recent survey conducted by the Federation of Korean Industries (FKI) targeting 18 major economic organizations worldwide, international organizations, and economic consultative bodies, 52% selected a double-dip (W-shaped) scenario when asked about the expected pattern of global economic recovery after COVID-19. Only 36% anticipated a gradual U-shaped recovery following the lifting of lockdown measures after summer.

If clear results are not achieved in quarantine measures within this month, a contraction in the economy is inevitable. The Korea Development Institute (KDI) forecasts a negative growth of -1.6%, and the Bank of Korea expects -1.8%. Regarding this, Joo Won, head of the Economic Research Department at Hyundai Research Institute, explained, "The duration and geographic scope of COVID-19's spread cannot be confirmed," adding, "If a pessimistic scenario is assumed, the possibility of annual negative growth also exists." Joo further stated, "Under the current situation, the most likely scenario is an asymmetric U-shaped recovery, forming a bottom in the second quarter and gradually rising," but expressed concern that "if a large-scale resurgence occurs or unexpected global economic shocks such as the U.S.-China trade war or a crisis in the Chinese economy materialize, it could lead to a long-term recession path that is difficult to recover from within this year."

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