COVID-19 Accelerated South Korea's Economic Contraction... 'Improvement Trend → Increased Uncertainty'

(Photo for reference)

[Asia Economy Reporter Joo Sang-don] The novel coronavirus infection (COVID-19) is accelerating the contraction of the Korean economy. Industrial production and employment indicators continue to decline, and research institutions are lowering their forecasts for Korea's economic growth rate.

First, the Ministry of Economy and Finance diagnosed in the recent economic trend report (Green Book) for September last month that "the resurgence of COVID-19 in the metropolitan area and the strengthening of social distancing measures have expanded uncertainty in the real economy."

Previously, it had cautiously expressed optimism about the recent economic situation, stating that "the improvement trend in domestic demand-related indicators continues," but following the resurgence of COVID-19 in mid-August, it shifted the weight from optimism to pessimism regarding the economic situation, saying "uncertainty is expanding." However, since the COVID-19 resurgence is still ongoing, it took a cautious stance, saying that the extent of the shock needs to be "monitored further."

Already, the Korea Development Institute (KDI), a government-funded research institute, lowered its forecast for Korea's economic growth rate this year from 0.2% to -1.1% on the 8th of last month.

Industrial activity and employment indicators are also struggling. According to the "August Industrial Activity Trend," total industrial production (seasonally adjusted, excluding agriculture, forestry, and fisheries) decreased by 0.9% compared to the previous month. This is the first decline in total industrial production compared to the previous month in three months since May this year (-1.2%). In particular, manufacturing decreased by 1.0% compared to the previous month due to declines in food products (-7.3%) and automobiles (-4.1%).

The number of employed persons in August was 27.085 million, down 274,000 compared to the same month last year. This marks the longest consecutive decline in six months since 2009 (January to August, 8 months) right after the financial crisis, the longest in 11 years. The number of employed persons in August has been declining for six consecutive months since March not only in face-to-face contact consumption-related sectors such as wholesale and retail trade, accommodation and food services, and education services but also in manufacturing (-50,000).

Economic sentiment felt by companies and the public has also weakened. According to the "September Business Survey Index (BSI) and Economic Sentiment Index (ESI)" announced by the Bank of Korea on the same day, the BSI for all industries this month was 64, down 2 points from the previous month. After steadily recovering since April (51), the BSI fell sharply for the first time in five months. The non-manufacturing BSI (62, -4 points), which has a high proportion of face-to-face industries, was particularly weak due to the resurgence of COVID-19. The manufacturing BSI was generally on a recovery trend, but the manufacturing small and medium enterprises recorded 58, down 4 points from the previous month (62). The Economic Sentiment Index (ESI), which shows the comprehensive economic sentiment of the private sector including companies and households, recorded 73.2, down 6.5 points from the previous month.

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