Hankyung Research Institute Lowers South Korea's Economic Growth Rate to -0.5% This Year... Contraction Due to COVID-19

Hyundai Research Institute Lowers South Korea's GDP Growth Forecast from 0.3% to -0.5%
W-Shaped Double Recession Likely Under Pessimistic Scenario Due to COVID-19 Resurgence

[Asia Economy Reporter Kim Hyewon] The domestic economy, hit hard by the novel coronavirus infection (COVID-19), is expected to contract by 0.5% this year.

On the 23rd, Hyundai Research Institute revised South Korea's economic growth forecast for 2020 downward from 0.3% to -0.5% in its economic outlook titled "2020 Korea Economic Revised Forecast - Concerns of Negative Growth Due to COVID-19 Crisis." The GDP growth rate in the first half of this year recorded -0.8% compared to the same period last year, and the domestic economy is expected to grow by -0.3% in the second half as well.

Joo Won, Director of Economic Research at Hyundai Research Institute and the author of the report, explained, "Considering the expected domestic and international resurgence of COVID-19, which restricts face-to-face and contact activities and raises concerns about a secondary economic shock centered on consumption expenditure and the service industry, we have revised the domestic economic growth forecast from positive growth to negative growth." He noted that the resurgence of COVID-19 is occurring earlier than expected in the summer, making a pessimistic W-shaped double-dip recession scenario more likely than the hopeful V- or U-shaped economic rebound scenarios.

Private consumption is expected to turn downward compared to last year's 1.7% growth. Restrictions on consumption activities and worsening consumer sentiment due to the resurgence of COVID-19 are negatively impacting private consumption. Hyundai Research Institute projected private consumption growth rates of -1.6% in the second half and -3.0% for the entire year.

Construction investment, which decreased by 2.5% last year, is expected to turn positive with a 0.7% increase this year. This is attributed to expanded investment in civil engineering and public sectors driven by increased government SOC budgets.

Facility investment is also expected to show positive growth this year due to investments in semiconductor-related industries and base effects. Demand for semiconductors and IT industries is expected to continue due to the expansion of non-face-to-face demand and digital transformation caused by COVID-19, although there remains a possibility of further adjustments due to oversupply. The forecast for facility investment growth rates is 0.2% in the second half and 2.2% for the year.

The current account balance is projected at $31.8 billion in the second half and $51 billion for the year. Exports and imports are expected to contract by 9.2% and 7.6%, respectively, compared to the previous year. The consumer price inflation rate is forecasted at 0.8% in the second half and 0.7% for the year.

In the employment sector, the unemployment rate is expected to rise and the number of employed persons to sharply decline. The resurgence of COVID-19 is causing employment decreases in some service sectors such as retail, wholesale, accommodation, and food services, and reduced new hiring by companies is expected to negatively affect employment growth. Accordingly, the unemployment rate is forecasted at 3.8% in the second half and 4.0% for the year, with new employment numbers declining by 140,000 in the second half and 100,000 for the year.

Director Joo stated, "Preventing the collapse of medical and quarantine systems due to the resurgence of COVID-19 is the most urgent task, and complementary measures must be continuously implemented to ensure that strong quarantine measures do not adversely affect private economic activities." He advised, "Policy response measures should be prepared to counter the worst-case scenarios to prevent the recent virus resurgence and economic cooling from continuing, and long-term strategies to escape from entrenched low growth should be pursued simultaneously." He emphasized the need for multifaceted measures such as income and tax support to alleviate downward pressure on private consumption, as well as active efforts to improve facility investment conditions, deregulation, and the creation of new industries to secure a foundation for economic recovery and expand growth potential.

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