Unrealistic Optimism or Worst-Case Escape... Government Diagnosis is 'Mitigation of Downside Risks'

[Sejong=Asia Economy Reporter Kim Hyunjung] The government has interpreted the improvement in consumer sentiment last month, which had been deteriorating continuously since the outbreak of the novel coronavirus disease (COVID-19), as a sign that the situation is less likely to worsen further than it is now. Although the recently released May employment data confirmed the highest unemployment rate in over 20 years, this phenomenon is also seen as a positive signal because it reflects an increase in the economically active population engaging in job-seeking activities.

The Ministry of Economy and Finance stated in the 'Recent Economic Trends (Green Book June issue)' published on the 12th that "Although uncertainty caused by COVID-19 continues, the contraction in domestic demand is easing, and the decline in employment is narrowing, somewhat mitigating downside risks to the real economy." This somewhat softened the previous assessment of 'expanding downside risks' last month, lowering the level of concern.

This government assessment is based on preliminary figures related to private consumption in May. Domestic card approval amounts increased by 5.3% compared to the same period last year, turning positive for the first time in three months after -4.3% in March and -5.7% in April. Domestic sales of domestically produced passenger cars rose 14.0%, continuing the three-month consecutive increase following 13.2% in March and 11.6% in April, influenced by reductions in individual consumption tax.

The consumer sentiment index in May was 77.6, significantly below the baseline of 100, but improved by 7.6 points from the previous month (70.8). This is the first improvement compared to the previous month since January this year (104.2), when COVID-19 cases first appeared domestically, after four months.

On the 10th, citizens are entering the unemployment benefits briefing room at the Seoul Employment Welfare Plus Center in Jung-gu, Seoul. Photo by Mun Ho-nam munonam@

However, it is difficult to say that consumption has normalized. Most of the recovery in consumption is concentrated in online sales, a non-face-to-face channel. Offline channels still show sluggish trends. In May, department store and discount store sales recorded -9.9% and -9.3% year-on-year, respectively, while online sales jumped 21.9%, increasing the growth rate compared to April (19.9%). In particular, the decline in department store sales improved compared to the previous month (-14.7%), but discount store sales worsened about tenfold compared to the previous month (-0.9%).

The government also emphasized that it detected an improving atmosphere in the employment market. The number of employed people in May decreased by 392,000 compared to the same month last year, which is an improvement from April (-476,000). The government self-assessed this as a sign of recovery in economic activity and job conditions. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki commented at the inter-ministerial meeting on the 10th, when these employment figures were announced, that "This was due to the transition to social distancing in daily life at the beginning of last month, the effects of COVID-19 economic crisis policy responses including consumption coupons and emergency disaster relief funds, and the overall recovery of consumer sentiment." First Vice Minister Kim Yong-beom of the Ministry of Economy and Finance also added, "We are gradually beginning to emerge from the first employment market shock caused by COVID-19."

Vice Minister Kim particularly gave a positive assessment of the fact that the number of unemployed people last month increased by 133,000 (11.6%) year-on-year to 1,278,000, and the unemployment rate rose by 0.5 percentage points to 4.5%, the highest since related statistics began in 1999. He explained, "Many unemployed people avoided job-seeking activities and were classified as 'economically inactive population' rather than 'unemployed.'" He added, "Although the rise in the unemployment rate is not welcome news, the increase in unemployment during the COVID-19 era can also be interpreted as a sign that the willingness and conditions to seek jobs are being revived, thus containing positive aspects simultaneously."

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