Due to the COVID-19 resurgence, national research institutes lower growth forecasts while the government leans toward a negative outlook

(Photo) [Image source=Yonhap News]

[Asia Economy Reporter Joo Sang-don] Due to the resurgence of the novel coronavirus infection (COVID-19), the Korea Development Institute (KDI), a government-funded research institute, has significantly revised its economic growth forecast for this year downward into negative territory. The government's economic outlook has also turned pessimistic.

On the 11th, the Ministry of Economy and Finance diagnosed in the September Recent Economic Trends (Green Book) that "the resurgence of COVID-19 in the metropolitan area and other regions, along with strengthened social distancing measures, has increased uncertainty in the real economy."

The impact of the COVID-19 resurgence is first detected in the tourism and consumption sectors. Kim Yong-beom, the first vice minister of the Ministry of Economy and Finance, expressed concern at a policy review meeting held at the Government Seoul Office, stating, "Tourism consumption, which had been recovering, began to decline again starting from the third week of August, the period of COVID-19 resurgence, exacerbating difficulties in the tourism industry." He added, "In the dining sector, sales are declining mainly in the metropolitan area and major cities where dining establishments are concentrated." In fact, tourism consumption recorded -19.8% in the fifth week of July, then the decline narrowed to -12% in the second week of August, but it widened again to -23.1% in the second week and -34.5% in the fourth week of August. The decrease in card sales in the dining sector also narrowed to -0.2% in the second week of August but expanded to -26% in the fourth week.

Earlier, on the 8th, KDI stated in the September issue of its Economic Outlook that "after a sharp contraction in private consumption and exports in 2020, resulting in a negative growth of -1.1%, the economy is expected to grow by 3.5% in 2021, with limited recovery." This revised the growth rate for this year down by 1.3 percentage points from the 0.2% forecast presented in May. KDI has only revised its economic growth forecast three times before: in 2008, 2009, and 2012.

KDI explained, "Recently, as COVID-19 has rapidly resurged in our economy, the economic growth rate has lowered further, and the possibility of delayed economic recovery has increased. The current situation is unfolding similarly to the downside scenario assumed in the May KDI Economic Outlook, so the 2020 growth rate of our economy is likely to fall significantly below the baseline scenario forecast (0.2%)."

At the time of the previous forecast, the baseline scenario assumed that the spread of COVID-19 would slow down domestically from the first half of the year and globally from the second half. However, the spread accelerated in the second half of the year. Additionally, the sharp confrontation between the United States and China is expected to act as an additional downside factor for our economy, which is highly dependent on exports to these two countries.

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