'COVID-19 Impact Concentrated' Daegu and Gyeongbuk, Manufacturing Production Declines in Q2

Bank of Korea June 2020 Regional Economic Report

[Asia Economy Reporter Kim Eun-byeol] The decline in manufacturing production in the Daegu-Gyeongbuk region, which was heavily affected by the novel coronavirus infection (COVID-19), continued into the second quarter (April to June). However, the overall economic downturn in the Daegu-Gyeongbuk region, as well as in the Seoul metropolitan area and Jeju region, somewhat eased compared to the first quarter.

The Bank of Korea released the "Regional Economic Report" on the 25th, which contains observations from 15 regional headquarters monitoring companies and related organizations within each area.

Looking at economic trends by production sector, manufacturing production in the second quarter continued to decline at the same level as the previous quarter in the Seoul metropolitan area, Daegu-Gyeongbuk region, and Gangwon region. The decline widened in the Dongnam region, Chungcheong region, and Honam region. In particular, in the Seoul metropolitan area, overall production slightly decreased due to the suspension of operations at automobile assembly plants and the reduction of display production facilities, including liquid crystal display (LCD) manufacturers.

In the Daegu-Gyeongbuk region, production decreased as domestic and international demand sharply slowed for automobile parts, steel, and mobile phones. In the Gangwon region, medical devices declined due to restrictions on face-to-face sales and disruptions in global promotion, while dairy products decreased as milk consumption for school meals dropped due to prolonged school closures. In the Dongnam region, automobile and parts production fell sharply due to export declines, and machinery equipment and steel also weakened as demand from domestic and foreign upstream industries contracted.

Regarding service industry production, the Honam region shifted to a slight increase centered on wholesale and retail trade and accommodation and food services, while all other regions saw a smaller decline than in the first quarter.

In the Daegu-Gyeongbuk region, wholesale and retail production slightly increased due to government support measures, but real estate production decreased due to a contraction in housing transactions caused by avoidance of face-to-face dealings. In the Seoul metropolitan area, international flights were virtually suspended due to the global spread of COVID-19, leading to poor performance in air transportation, and real estate also declined.

Examining demand sectors, consumption in the second quarter remained at the previous quarter's level in the Seoul metropolitan area and Daegu-Gyeongbuk region, where COVID-19 cases were relatively high. Consumption slightly increased in the Dongnam, Chungcheong, Honam, and Gangwon regions, while the Jeju region saw a slight decrease due to worsening income conditions caused by the tourism industry's slump. Except for Jeju, most regions experienced a slight increase in durable goods such as automobiles and home appliances due to reductions in individual consumption tax on passenger cars and the expansion of telecommuting and remote learning. Consumption of nondurable goods such as food and beverages and hygiene products also increased due to government and local government consumption activation policies and the easing of social distancing.

Facility investment decreased in all regions except the Honam and Jeju regions, which maintained the previous quarter's level. In the Gangwon region, accommodation businesses reduced or postponed planned investments due to the downturn in tourism. In the Daegu-Gyeongbuk region, investment slightly declined due to sluggishness in textile and automobile parts manufacturing.

Compared to the same period last year, exports in the second quarter slightly increased in the Jeju region, centered on semiconductor design, but decreased in other regions. In particular, the Dongnam region saw a sharp decline in exports of most items, including automobiles, machinery equipment, and steel and metals, and ship deliveries were delayed due to disruptions at overseas affiliates. The Honam region experienced a significant decrease, mainly in petrochemicals, refining, steel, and automobiles.

The Bank of Korea's report also included survey results from 451 companies nationwide (263 manufacturing, 158 service, and 30 construction companies). 76.4% of surveyed companies reported that production from February to April this year decreased compared to the same period last year. 13% of all companies have already reduced their workforce due to business deterioration, and 27% said they would reduce employment if the COVID-19 situation does not improve. More than half of the companies reported financial difficulties (somewhat difficult 29.4%, difficult 16.2%, severely difficult 7.2%).

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