'Worst-case Scenario' Realized Amid COVID-19 Resurgence (Comprehensive)

Major Institutions Assume Worst-Case Scenario of 'COVID-19 Massive Spread' Reality
991 New Cases Added in Five Days
Economic Recovery Hindered by Private Consumption; Consumption Coupon Program Also 'All Stop'

[Sejong=Asia Economy Reporters Kim Hyun-jung, Kim Eun-byeol, Jang Se-hee] As the novel coronavirus infection (COVID-19) rapidly resurges mainly in Seoul and the metropolitan area, this year's economic growth rate is heading toward the 'worst-case scenario' issued by major domestic and international institutions. Less than a week after the Organization for Economic Cooperation and Development (OECD) report, which predicted that Korea would show the most robust growth in the world based on quarantine achievements, the country is now facing an unpredictable crisis.

According to major domestic and international institutions such as the OECD, the International Monetary Fund (IMF), and the Bank of Korea on the 18th, the 'worst-case scenario' for Korea's economic growth rate this year, presented in the first half of the year, was commonly calculated assuming a resurgence or prolonged spread of COVID-19 in the second half. Based on a second wave, the OECD projected a -2.0% contraction, the IMF -2.1%, the Bank of Korea -1.8%, and the Korea Development Institute (KDI) -1.6%. However, at the time these institutions announced their forecasts, the dominant view was that after the decline in growth rate due to the COVID-19 spread in the first half, a gradual recovery would be possible in the second half, so these figures did not carry much weight.

As the number of confirmed cases of the novel coronavirus infection (COVID-19) related to Sarang Jeil Church in Seongbuk-gu, Seoul, led by Pastor Jeon Kwang-hoon, exceeded 300, the alley leading to Sarang Jeil Church was blocked on the 18th. Photo by Moon Ho-nam munonam@

◆Unusual Spread... Domestic Stimulus Coupons Also Halted= However, the number of new domestic COVID-19 cases began to surge sharply from the temporary holiday weekend on the 14th. With 103 confirmed cases, it exceeded 100 for the first time in three weeks since the 25th of last month (113 cases), and a total of 991 cases were added over five days up to that day.

Effectively stepping closer to a 'second large wave,' the 'recovery of private consumption,' which major domestic institutions regarded as the foundation for Korea's economic rebound in the second half, has become difficult to expect. In the industrial trend report released at the end of last month, retail sales appeared to recover to normal levels, increasing by 2.4% compared to the previous month and 6.3% compared to the same period last year. However, overlapping nationwide flood damage and the recent COVID-19 spread led the government to urgently suspend a 170 billion won scale coupon distribution project for dining out, movies, performances, exhibitions, and tourism, making it difficult for consumption momentum to revive in the second half. Exports remain sluggish. According to the Korea Customs Service, export value from the 1st to the 10th of this month was $8.7 billion (approximately 10.3312 trillion won), a sharp 23.6% decline compared to the same period last year, and worse than the previous month's performance (-7%).

Experts are also skeptical about domestic stimulus projects based on face-to-face consumption. Professor Sung Tae-yoon of Yonsei University's Department of Economics pointed out, "Rather than the government directly financing to boost domestic demand, regulations should be eased so that consumption flows naturally." Professor Kim Tae-gi of Dankook University's Department of Economics also said, "The use of already distributed coupons, suspension, postponement, and usage of coupons vary by policy, causing only confusion," adding, "There is a limit to raising final consumption and improving the growth rate."

◆Bank of Korea Faces Complex Calculations Ahead of Revised Economic Outlook Announcement= Given this situation, the Bank of Korea's dilemma in releasing the revised economic growth forecast on the 27th is growing. Initially, the Bank of Korea planned to present growth rates reflecting the global situation, including the U.S. and China, assuming that the COVID-19 spread in Korea had somewhat subsided. However, with the resurgence of COVID-19 cases following the rainy season, the possibility of consumption and domestic demand suffering a critical blow like this spring has increased, making it difficult to predict growth rates.

A Bank of Korea official said, "Coincidentally, every month we announce growth forecasts, COVID-19 spreads domestically, making it hard to predict," adding, "After the first spread of COVID-19 in February, there were events such as the Itaewon cluster infection in May and a large number of confirmed cases this month." He also added, "Usually, about a week before the revised economic outlook announcement, forecasts are mostly finalized with only detailed adjustments remaining, but this time, the number of confirmed COVID-19 cases can vary significantly daily, so we cannot let our guard down until just before the announcement."

Regardless of domestic confirmed case trends, the overseas situation remains uncertain. The U.S., which has the greatest impact on global economic growth, seemed to recover as lockdown measures were lifted, but recently released indicators fell short of expectations, causing disappointment. The Chinese economy is showing signs of recovery, but the pace is not fast. The U.S.-China trade war dynamics and changes in U.S. responses to China depending on the U.S. presidential election results are also variables. KB Financial Group Management Research Institute stated, "China is expected to achieve around 5% growth in the second half and record 2-3% growth this year," but cited U.S.-China trade conflicts and inflation caused by heavy rains as downside risks.

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