Will the Korean Economy Stretch Out?... "All Available Measures Mobilized for Q3 Economic Recovery" (Comprehensive)

June Industrial Activity Trends Announcement
Production, Consumption, and Investment Triple Rebound Strengthens the Foundation

[Sejong=Asia Economy Reporter Kim Hyunjung] Despite the ongoing impact of the novel coronavirus disease (COVID-19), domestic production, consumption, and investment indicators have all simultaneously rebounded, attempting to break free from the bottom. While the base effect from previously large declines also played a role, this is the clearest recovery trend observed since the outbreak of COVID-19. The government plans to attempt an economic rebound in the third and fourth quarters of this year through various investment activation measures in addition to the Korean New Deal.

According to the 'June Industrial Activity Trends' released by Statistics Korea on the 31st, the coincident index cyclical component, which reflects the current economic situation, and the leading index cyclical component, which forecasts future economic phases, both rose by 0.2 points and 0.4 points respectively compared to the previous month, marking a simultaneous upward reversal for the first time in five months. This signals not only an improvement in the economic situation, as seen in the triple rebound of total industrial production (4.2%), retail sales (2.4%), and facility investment (5.4%), but also a better outlook for the economy.

[Image source=Yonhap News]

◆Statistics Korea: "Recovery is as fast as the shock was severe"= Statistics Korea explains that the shock caused by COVID-19 is more direct and steep compared to previous major downturns in our economy, such as the 1998 International Monetary Fund (IMF) foreign exchange crisis and the 2008 global financial crisis, and the recovery is also faster. The exogenous variable of COVID-19 occurred just as the domestic economy was about to exit the contraction phase in its cyclical cycle. After peaking in 2017, total industrial production (1.7%), retail sales (0.6%), and facility investment (7.9%) began to rebound significantly in December last year. This 'triple recovery' appeared six months after that.

Retail sales, which began to rise in April, have already recovered to last year's level, which was on a normalization track. Compared to the same period last year, the figures shifted from -8.0% in March and -2.2% in April to 1.7% in May, then surged to 6.3% growth in June. Although sales at duty-free shops (-42.4%), specialty stores (-6.5%), and department stores (-3.2%) remained sluggish, strong sales at passenger car and fuel retail stores (29.4%) and non-store retailing (25.8%) drove the growth. For automobiles, this was the largest increase since March (46.0%).

Facility investment showed a similar trend, increasing by 5.4% month-on-month and 13.9% year-on-year, with investments in machinery (4.7%) and transportation equipment such as automobiles (7.2%) both rising. Total industrial production increased by 4.2% month-on-month and 0.7% year-on-year. This was influenced by a 7.2% month-on-month increase in manufacturing production, driven by automobile (22.9%) and semiconductor (3.8%) sales, and a 2.2% improvement in service production due to increases in education (5.4%) and finance and insurance (2.8%).

Hong Nam-ki, Deputy Prime Minister for Economy and Minister of Economy and Finance, is speaking at the Central Emergency Economic Countermeasure Headquarters meeting held at the Government Seoul Office Building on the morning of the 30th. Photo by Kang Jin-hyung aymsdream@

◆Full effort for economic rebound in Q3... Accelerating investment activation= To achieve a full economic rebound, the government plans to create investment incentives that can absorb the excess liquidity in the market and lay the foundation for economic growth. Representative measures include the previously announced 'Korean New Deal Comprehensive Plan' worth 160 trillion won (114 trillion won in national funds, 25 trillion won in local funds, and 21 trillion won in private funds) and a plan to activate private investment projects worth 30 trillion won plus alpha.

The recent allowance for general holding companies to hold corporate venture capital (CVC) in a limited capacity was also introduced as part of investment activation. This is expected to enable large corporations to increase venture investments more quickly and actively, and to revitalize the currently weak exit market through mergers and acquisitions (M&A). In the National Assembly, tax incentives to activate the public participation New Deal fund are under discussion. Lee Kwang-jae, a member of the Democratic Party of Korea, recently proposed an amendment to the Restriction of Special Taxation Act to introduce a separate taxation special case applying only a 5% tax rate on dividend income up to 300 million won from New Deal funds, and is seeking support from fellow lawmakers for the bill.

The government expects that with these comprehensive policy offensives, a full economic response will be possible in the third quarter of this year. Kim Young-hoon, head of the Economic Analysis Division at the Ministry of Economy and Finance, said, "If the effects of supplementary budgets, the Korean New Deal, and temporary holidays are added, they will contribute to the economic rebound going forward," adding, "We will do our utmost to thoroughly manage quarantine and risks and mobilize all available policy tools to ensure a definite economic rebound in the third quarter." The biggest variable is how far and how much COVID-19 will spread. Ahn Hyung-joon, director of the Economic Trend Statistics Review at Statistics Korea, said, "It is positive that COVID-19 is being stably controlled domestically, but at the same time, the level of COVID-19 spread remains the most unstable factor for future industrial activity," adding, "The trend of overseas COVID-19 spread and the US-China economy are also cited as risk factors."

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