Government Chasing 'Two Rabbits' of Quarantine and Economy... Risk of Backfiring

Promoting Personal Hygiene While Continuing Consumer Incentives Like Coupons
Despite Rebounds in Economic Indicators, Next Year's Outlook Remains Uncertain

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Although the number of new domestic COVID-19 cases has risen to the 300s for the third consecutive day, raising concerns, the government is still committed to its goal of "catching two rabbits" by managing both the economy and quarantine measures simultaneously. While urging the public to strictly follow personal quarantine protocols and minimize gatherings, the government plans to continue consumption stimulus measures such as issuing consumption coupons. Since early this month, social distancing levels have been subdivided, and regulations have been relaxed. Citizens, exhausted from the year-long COVID-19 crisis, are also letting their guard down. If quarantine measures relying on individual judgment succeed as the government intends, the short-term economic impact of a COVID-19 resurgence could be reduced. However, there are concerns that complacent responses might lead to greater losses. If COVID-19 cases suddenly increase exponentially, it is possible that both quarantine and economic goals could be missed.

Consumption Coupon Program Continues Despite COVID-19 Resurgence

According to the Ministry of Economy and Finance on the 20th, the government plans to continue the eight major consumption coupon programs despite the resurgence of COVID-19. On the 19th, Kim Yong-beom, the first vice minister of the Ministry of Economy and Finance, stated, "Under thorough quarantine measures, the consumption coupon program will continue during social distancing level 1.5," adding, "If the spread worsens, we will review the situation again with relevant ministries." The government had previously issued consumption coupons in August but halted issuance within two days due to a COVID-19 resurgence.

Since early this month, social distancing levels have been subdivided, and guidelines have been relaxed. The government reorganized social distancing from three levels to five levels, adding levels 1.5 and 2.5 within levels 1 to 3. Institutions such as the Bank of Korea, which have released economic forecasts for this year, report that the impact of COVID-19 resurgence on consumption has significantly decreased due to the expanded social distancing levels. For example, before the reorganization, sports events at social distancing level 2 were held without spectators, but now 10% attendance is allowed. Gatherings that were previously banned if over 50 people are now permitted up to 100 people. A Bank of Korea official explained, "Around April this year, even with daily new cases at 50-60, people refrained from going out or gathering much more than now. Currently, even at levels 1.5 or effectively level 2, everyday consumption seems to be continuing."

Kim Yong-beom, the 1st Vice Minister of Strategy and Finance, is giving a briefing on the Central Emergency Economic Countermeasures Headquarters meeting at the Government Seoul Office Building on the morning of the 19th. [Image source=Yonhap News]

Economic Indicators Barely Rebounded but Future Remains Uncertain

Accordingly, the consumption shock caused by the COVID-19 resurgence is expected to be much less severe than earlier this year. The consumer sentiment index released by the Bank of Korea dropped to 70.8 in April but was around 79.4 in September when the resurgence occurred, indicating a less severe impact than in April. Exports are also recovering. From the 1st to the 10th of this month, export volume (provisional customs clearance basis) increased by 20.1% compared to the same period last year.

However, no one knows how long the government's "two rabbits" strategy will work. Jung Eun-kyeong, head of the Central Disease Control Headquarters (Director of the Korea Disease Control and Prevention Agency), emphasized, "The biggest concern is when the number of patients accumulates and increases exponentially," adding, "If the exponential increase in patients continues for 1-2 weeks, it will become difficult to operate intensive care unit beds." This suggests that efforts to reduce short-term consumption shocks could lead to even greater economic shocks.

Although optimistic prospects have emerged overseas with news of vaccine development, lockdown measures continue due to the COVID-19 resurgence, making export recovery during the year-end and New Year period uncertain. The steadily declining won-dollar exchange rate amid a weak dollar is also negative for our exports. If next year's economic outlook worsens, it will become more difficult to formulate economic policies. Until now, the general view was that 3% growth was possible next year, but if a "V-shaped recovery" becomes more distant, the amount of government spending required will increase. The government is scheduled to announce the "2021 Economic Policy Direction" next month.

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