KDI "High Possibility of Economic Contraction Again Due to COVID-19 Resurgence"

KDI, Economic Trends September Issue

COVID-19 Spread Period and Credit Card Sales Revenue.

[Sejong=Asia Economy Reporter Joo Sang-don] The Korea Development Institute (KDI) evaluated on the 7th that "Recently, our economy is highly likely to contract again as the novel coronavirus disease (COVID-19) spreads once more."

KDI released the September issue of its Economic Trends report containing this assessment.

KDI viewed that exports gradually eased their slump as major countries experienced some economic rebound centered on consumption, while domestic demand partially recovered due to the slowdown in COVID-19 spread within Korea. However, since mid-August, the re-spread of COVID-19 has expanded downward pressure on the economy.

A KDI official stated, "Since mid-August, with the re-spread of COVID-19 and the elevation of social distancing to level 2, the economy is expected to contract again, especially in the service sector," adding, "It is estimated that credit card sales sharply declined after the strengthening of quarantine measures, indicating a rapid contraction in consumption."

Although economic sentiment indicators showed improvement and signs of easing economic downturn were observed, the rapid increase in new COVID-19 cases since mid-August raised the likelihood of prolonged economic sluggishness. KDI judged that strengthened quarantine measures will constrain the future economic recovery trend.

Concerns were also raised about the possibility of consumption shrinking again. Retail sales in July recorded a 0.5% increase, narrowing from the previous month's 6.3%. Service industry production posted a -1.3% growth rate, lower than the previous month's -0.1%. KDI forecasted that consumption, especially in face-to-face service sectors, will contract again due to the COVID-19 resurgence since mid-August. According to Shinhan Card's analysis, credit card sales in the Seoul metropolitan area decreased by 12.1% year-on-year from August 19 to 30, when social distancing level 2 was implemented.

The employment situation is also likely to deteriorate again. Total employment in July decreased by 277,000 compared to the same month last year, showing a smaller decline than the previous month (-352,000). However, KDI expects that the rapid increase in new COVID-19 cases since mid-August will cause a significant drop in employment, especially in face-to-face service industries and temporary/daily jobs.

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