Concerns Over Triple Impact on Consumption, Production, and Employment Due to COVID-19 Resurgence

Additional Decline in Growth Rate Inevitable with Implementation of Social Distancing Level 3

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] With the domestic resurgence of the novel coronavirus infection (COVID-19), social distancing measures have been raised from level 2 to 2.5 starting from the 30th, making economic damage inevitable. All economic indicators, including consumption, production, and employment, are expected to slump just as they did during the first outbreak earlier this year. If the COVID-19 resurgence prolongs and the measures are further raised to level 3, there are forecasts that a 'panic' will spread throughout the economy.

With the implementation of social distancing level 2.5, for the next week, general restaurants, cafes, and bakeries in the metropolitan area will be restricted to takeout and delivery orders only from 9 PM to 5 AM the following day, and franchise coffee shops will be limited to takeout and delivery orders regardless of business hours. Indoor sports facilities and study rooms will also be closed, and academies will only be allowed to conduct non-face-to-face classes. As these regulations are applied, small business owners' sales are expected to drop sharply. Accordingly, a decline in service industry production is inevitable. Production in manufacturing and other sectors, which are more affected by overseas COVID-19 spread than domestic factors, is also expected to decline, though not as much as in the service industry.

If consumption and production are hit, a sharp drop in employment is also a concern. In particular, temporary and daily workers in face-to-face service industries are expected to decrease significantly, and new jobs and regular workers may also be affected. Looking at the indicators from the first major COVID-19 outbreak, service industry production decreased by 5.0% in March, 6.1% in April, and 4.0% in May compared to the previous year, while manufacturing and other industrial production increased by 7.7% in March but decreased by 5.0% and 9.8% in April and May, respectively. The number of employed persons sharply declined by 278,000 in March, 334,000 in April, and 371,000 in May.

However, since the psychological shock was already experienced in early March, there is also a forecast that consumption contraction will not be as severe as during the first outbreak, as citizens increase non-face-to-face consumption this time.

[Image source=Yonhap News]

The problem arises if COVID-19 continues to resurge through the winter. In such a case, there is a possibility that social distancing measures will need to be raised one step further to level 3. If this happens, all activities except essential social and economic activities will be fundamentally prohibited. When level 3 is implemented, a massive shock will hit the entire economy, including consumption, production, and investment, and the growth rate is expected to plummet. There is also a possibility of mass unemployment.

KB Securities analyzed that if social distancing level 3 is implemented in the metropolitan area for two weeks, the annual growth rate will fall by 0.4 percentage points, and if level 3 measures are expanded nationwide, the growth rate will drop by 0.8 percentage points.

If the social distancing level 3 period is prolonged, the real economy will be shaken, financial institutions will become insolvent, and a chain reaction of market shocks will be inevitable. If foreign investment funds withdraw, it could lead to problems in the stock market or exchange rates. However, the government stated, "We are not greatly concerned about market shocks due to the COVID-19 resurgence," adding, "We have taken sufficient measures to prepare for market shocks earlier this year, and since the market is currently stable and some suspended programs can be reactivated, we can respond accordingly."

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