[Weekly Review] Second Disaster Relief Fund Supplement Increases National Debt... Economic Outlook 'Gloomy'

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki is delivering opening remarks at the '8th Emergency Economic Meeting Joint Briefing' held at the Government Seoul Office in Jongno-gu, Seoul, on the afternoon of the 10th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kim Bo-kyung] The government has prepared a 4th supplementary budget (supplementary budget) amounting to 7.8 trillion won to support small business owners and vulnerable employment groups affected by the resurgence of COVID-19. With the implementation of large-scale fiscal support measures, the national debt has increased by more than 106 trillion won in one year. The persistent spread of COVID-19 has increased uncertainty in the real economy, and there are forecasts that the economy will record a negative growth of -1.1% this year. As the employment market continues to be impacted, the number of employed people in August decreased by more than 270,000 compared to last year.

◆4th Supplementary Budget, Support for Small Business Owners and Vulnerable Employment Groups= The government held a Cabinet meeting on the 10th and deliberated and approved the 4th supplementary budget bill to provide the 2nd emergency disaster relief fund in response to the resurgence of COVID-19. The supplementary budget totals 7.8 trillion won. Key projects include providing 3.8 trillion won in New Hope Funds to small business owners and self-employed individuals affected by social distancing measures. For general businesses with annual sales under 400 million won that experienced any decrease in sales since the COVID-19 resurgence, 1 million won will be provided. Additionally, businesses subject to operating hour restrictions such as restaurants and coffee shops ('restricted gathering businesses') will receive 1.5 million won, while 'prohibited gathering businesses' such as PC rooms, academies, and reading rooms will receive 2 million won. The recipients of the New Hope Fund number 2.91 million, accounting for 86% of all small business owners. Other allocations include 1.4 trillion won (for 1.19 million people) to respond to employment shocks caused by the prolonged COVID-19 situation, 400 billion won (for 890,000 people) for emergency livelihood support for low-income groups, and 2.2 trillion won for emergency childcare support.

◆Deficit Bonds Issued to Secure Funds...Fiscal Soundness in the Red= With the 4th supplementary budget prepared for the first time in 59 years, the country's fiscal soundness is under emergency. The national debt has increased by more than 106 trillion won in one year due to the rise in government debt. To secure funds for the 4th supplementary budget, 7.5 trillion won worth of deficit bonds will be issued, pushing the national debt to 846.9 trillion won. The net increase in national debt will rise from 98.6 trillion won at the time of the 3rd supplementary budget to 106.1 trillion won. The integrated fiscal balance deficit, which is total revenue minus total expenditure, will increase by 7.8 trillion won compared to the 3rd supplementary budget, reaching 84 trillion won. The managed fiscal balance deficit, which excludes the four major social security funds such as the National Pension and Employment Insurance Fund to show the government's actual fiscal condition, will reach 118.6 trillion won, equivalent to 6.1% of GDP. This is the first time the managed fiscal balance deficit ratio has reached the 6% level. It has worsened by 7.1 trillion won and 0.3 percentage points compared to the 3rd supplementary budget.

[Image source=Yonhap News]

◆August Employment Decreased by 270,000...Six Months of Decline= The employment shock caused by the spread of COVID-19, combined with damage from the monsoon and heavy rains, led to a decrease of more than 270,000 employed people in August. According to the 'August Employment Trends' released by Statistics Korea on the 9th, the number of employed people last month was 27.085 million, down 274,000 from a year earlier. This marks six consecutive months of decline since March. It is the longest period of decline in 11 years since the global financial crisis when employment decreased for eight consecutive months from January to August 2009. This data does not reflect the impact of strengthened social distancing measures in the metropolitan area due to the resurgence of COVID-19, so the employment situation in September is expected to worsen further. By industry, employment decreased significantly in wholesale and retail trade (-176,000), accommodation and food services (-169,000), and education services (-89,000). Meanwhile, health and social welfare services (160,000), transportation and storage (56,000), and public administration, defense, and social security administration (55,000) saw increases.

◆Greenbook: "Uncertainty in Real Economy Increases Due to COVID-19 Resurgence"= The government diagnosed that uncertainty in the real economy is expanding due to the resurgence of COVID-19 in the metropolitan area and strengthened social distancing measures. The Ministry of Economy and Finance stated in the 'Recent Economic Trends (Greenbook September issue)' published on the 11th, "Recently, our economy has seen some stagnation in the improvement of certain domestic demand indicators, while the sluggishness in exports and production has somewhat eased," but "uncertainty in the real economy has expanded due to the resurgence of COVID-19 and strengthened distancing measures." The preliminary consumption data for August showed mixed positive and negative factors. Domestic card approval amounts increased by 3.4% compared to a year earlier. After two consecutive months of decline in March (-4.3%) and April (-5.7%) when COVID-19 impact was severe, it turned to an increase in May (5.3%) and maintained growth for four months through June (9.3%) and July (4.8%), although the growth rate slowed. Online sales increased by 35.5%. Domestic sales of Korean passenger cars increased by 10.7%, but the growth was significantly lower compared to June (44.9%), the last month of the reduced individual consumption tax rate. The Consumer Sentiment Index (CSI) improved to 88.2 from the previous month but still remains well below the baseline of 100.

◆KDI "Growth Rate -1.1% This Year"...Downward Revision of Forecast= The Korea Development Institute (KDI), a government-funded research institute, forecasted that South Korea's economy will record a negative growth rate of -1.1% this year. It also lowered the growth forecast for next year to 3.5%, significantly revising down the growth outlook. KDI announced this 'Revised Economic Outlook' on the 8th. The growth rate forecast for this year was lowered by 1.3 percentage points from 0.2% in May to -1.1%, and the growth rate for next year was lowered by 0.4 percentage points from 3.9% to 3.5%. KDI cited the possibility of delayed economic recovery due to the resurgence of COVID-19 as the reason for the downward revision. The export forecast was also revised downward from -3.4% this year and 4.9% next year in May to -4.2% this year and 3.4% next year. Although the slump is expected to gradually ease from the second half of this year, mainly in the goods sector, the recovery pace is expected to be slow.

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