"Income Decreases but Expenses Increase" Up to Social Distancing Level 2... Is Economic Recovery Possible?

50.9% of Households in the Bottom 20% Income Bracket Are Deficit Households... 7 Times Higher Than High-Income Groups
COVID-19 Resurgence Slows Global Economic Recovery
Experts: "Overcoming COVID-19 Situation Is Essential for Economic Recovery"

Due to the resurgence of the novel coronavirus infection, more than half of the households in the bottom 20% income bracket (first quintile) reported running a deficit. Photo by Yonhap News

[Asia Economy Reporter Kim Suwan] As the economic situation worsens due to the novel coronavirus infection (COVID-19) crisis, concerns are emerging that difficulties will persist for the common economy, including self-employed individuals and small business owners. In particular, as social distancing measures are strengthened, economic damage to the lower-income class is inevitable, which is expected to affect domestic demand as well. Experts analyze that the income gap between classes will widen further due to the pandemic, and the low-income group will suffer greater damage.

According to the results of the 3rd quarter Household Trend Survey by Statistics Korea on the 22nd, the deficit household rate of the lowest 20% income group, the 1st quintile households (based on nationwide households of two or more people), recorded 50.9%. About half of the 1st quintile households are in a deficit every month, meaning their consumption expenditure exceeds their income, spending more than they earn to maintain their households. This is the highest level in seven years since 2013, based on the 3rd quarter data.

The proportion of deficit households was larger among the low-income groups. As of the 3rd quarter, deficit households accounted for 23.9% in the 2nd quintile (lowest 40% income), 14.8% in the 3rd quintile (40% to 60%), 10.6% in the 4th quintile (60% to 80%), and 7.0% in the 5th quintile (top 20%). Notably, the deficit household rate in the 1st quintile was more than seven times higher than that of the 5th quintile.

In the 3rd quarter, the income earned by 1st quintile households was 1,637,000 KRW per month, a 1.1% decrease compared to a year earlier. These households reduced their expenditures by 3.6% compared to the previous year but still could not avoid deficits. According to this, the expenditure scale was 1,881,000 KRW per month, significantly exceeding the income scale (1,637,000 KRW).

This is due to the prolonged COVID-19 crisis, which has contracted domestic demand and worsened the economy as jobs have decreased. With difficulties expected in domestic demand recovery, the Korea Development Institute (KDI), a national research institute, lowered South Korea's economic growth forecast for next year by 0.4 percentage points within two months on the 11th. The forecast presented in September (3.5%) is now considered difficult to achieve.

Moreover, as confirmed cases have surged recently, opinions are emerging that the government’s decision to raise social distancing levels in some areas, including the metropolitan area, will further exacerbate the problem.

If social distancing level 2 is implemented, a ban on gatherings will be imposed on five types of entertainment facilities, including clubs, room salons, emotional pubs, and colatecs.

Additionally, cafes will only be allowed to offer takeout and delivery throughout their operating hours, prohibiting consumption of food and beverages inside the facilities. Restaurants will only be allowed takeout and delivery after 9 p.m.

As a result, various online communities and mom cafes are hearing self-employed individuals and small business owners express difficulties in maintaining their livelihoods. Due to business restrictions and bans caused by social distancing measures, consumption is shrinking, leading to situations where closure of businesses must be considered.

One netizen who identified as a self-employed person said, "Social distancing level 2 will be implemented until the 7th of next month, and many self-employed people will close their businesses during this period," adding, "Currently, income is almost nonexistent, and the future looks bleak. I am even considering closing my business, but it is not easy due to tax settlements, restoring the store to its original state, and other labor costs."

The recovery speed of the global economy is slowing down due to the resurgence of the novel coronavirus infection. Photo by Yonhap News

Amid this situation, the global economic recovery speed appears to be slowing due to the resurgence of COVID-19. The Bank of Korea recently stated in its 'Overseas Economic Focus' that "the global economy continues to improve, but the pace is somewhat slowing."

In the United States, improvement centered on consumption continues, but the recovery path is analyzed to have high uncertainty. On the 20th (local time), the U.S. recorded a historic high of 195,000 new COVID-19 cases, intensifying the resurgence.

Europe is also still facing economic damage. Due to the resurgence of COVID-19, both production and consumption are decreasing, weakening the economic recovery trend.

Experts point out that while economic stimulus measures are important, the fundamental cause is the COVID-19 situation, which must be overcome first.

Professor Kim Taegi of Dankook University’s Department of Economics said, "As jobs decrease, there will be households with no income at all. The low-income groups will inevitably suffer greater damage," and analyzed, "Basically, the pandemic will widen the income gap between classes even further."

Professor Kim added, "Medical experts predict that the COVID-19 situation will become more severe in winter," and said, "The perceived unemployment rate has soared to a historic high of 14%, and exports are expected to shrink as the global spread is severe. In this situation, the government introduced consumption coupons and other measures to stimulate consumption, but they failed."

He continued, "The fundamental problem is COVID-19," and suggested, "We must devote all efforts to resolving the COVID-19 situation. Rather than implementing policies that lower public vigilance, it is time to tighten quarantine measures even if it is inconvenient."

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