Will the COVID-19-Induced Drop in Private Consumption Hinder Economic Recovery?

Additional Shock Unavoidable if Social Distancing Raised to Level 3
Retail Sales Decline for First Time in 3 Months... 1.2% Increase in Service Sector Due to Base Effect

On the 17th, when Seoul recorded over 400 new confirmed cases of COVID-19 for the first time in history, citizens lined up to get tested at a temporary screening clinic set up in front of Seoul City Hall Plaza in Jung-gu, Seoul. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Jang Sehee] As the number of new confirmed cases of the novel coronavirus infection (COVID-19) continues to record in the thousands daily, there are forecasts that private consumption will further slow down. If the government raises social distancing to level 3, the remaining sparks of face-to-face consumption will be extinguished, and in the worst case, even non-face-to-face consumption could be affected.

According to the Bank of Korea on the 20th, private consumption in the third quarter of this year decreased by 4.4% compared to the same period last year. The situation remains unfavorable following the first quarter (-4.8%) and second quarter (-4.0%).

Retail sales and service industry production are also on a downward trend. According to the 'October Industrial Activity Trends' announced on the 30th of last month, retail sales, which indicate consumption trends, decreased by 0.9%. This is the first decline in three months since July (-6.0%). The decrease in sales of non-durable goods such as food and beverages (-5.7%) influenced the decline in retail sales.

Service industry production increased by 1.2% compared to the previous month. This is due to the base effect from the easing of social distancing in early October.

Concerns are emerging that the consumption shock caused by COVID-19 will deepen further. In fact, the Bank of Korea analyzed in its Monetary and Credit Policy Report that if social distancing is raised to level 3, private consumption will decrease by 16.6%, and gross domestic product (GDP) will shrink by 8%.

Academics also agree that private consumption will inevitably decline further if social distancing is intensified. Professor Kim Sangbong of the Department of Economics at Hansung University said, "If social distancing is strengthened beyond the current level, consumption is expected to fall to the level seen in March," and advised, "Standards for quarantine stability based on economic indicators should be established."

Meanwhile, the government expects the decline in consumption to slow down. A government official explained, "Comparing March and September, when social distancing was implemented, the intensity was stronger during the second wave, yet private consumption decreased less," adding, "It seems that as people adapt to COVID-19, consumption patterns are gradually changing."

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