"COVID-19 Economic Downturn Continues for 5 Quarters...Longest Since the Foreign Exchange Crisis"

Korea Economic Research Institute Analyzes Quarterly GDP Data
Face-to-Face and Service Industries Suffer Most
"Effective Policies Should Focus on Affected Sectors"

Source: Provided by Korea Economic Research Institute

[Asia Economy Reporter Kim Heung-soon] A private research institute has diagnosed that the economic recession caused by COVID-19 is the longest-lasting since the International Monetary Fund (IMF) foreign exchange crisis.

The Korea Economic Research Institute (KERI), under the Federation of Korean Industries, announced on the 21st that although one year has passed since the outbreak of COVID-19, the Korean economy has not recovered to pre-crisis levels for five consecutive quarters. It also added that the COVID-19 shock has concentrated on private consumption and face-to-face service industries, deepening polarization by sector and industry.

One Year After COVID-19, More Severe Than Global Financial Crisis
Recovery Took 6 Quarters for Foreign Exchange Crisis and 4 Quarters for Financial Crisis

Analyzing quarterly Gross Domestic Product (GDP) data, KERI found that the GDP in the fourth quarter of last year was 462.8 trillion won, which is 98.7% of the 468.8 trillion won GDP in the fourth quarter of 2019, just before the COVID-19 outbreak. KERI explained, "During the 2008 global financial crisis, quarterly GDP recovered to pre-crisis levels (101.0%) within one year," adding, "Our economy has fallen into a shock greater than the global financial crisis due to COVID-19."

KERI measured the intensity of economic shocks by calculating the maximum quarterly GDP decline before and after each crisis, showing the order as foreign exchange crisis (-7.6%), COVID-19 (-4.4%), and financial crisis (-3.2%). Recovery from the shock took six quarters for the foreign exchange crisis, four quarters for the financial crisis, and the COVID-19 crisis is still ongoing in its fifth quarter. KERI added, "With repeated COVID-19 resurgences and social distancing measures, the economic recovery period could be delayed to the level of the foreign exchange crisis."

Long-term L-shaped Slump in Private Consumption Persists
Exports Recovered Since the Second Quarter of Last Year

By category, private consumption continues its 'L-shaped' slump, while exports have sharply rebounded since the second quarter of last year, partially offsetting the economic downturn.

Private consumption in the fourth quarter of last year recorded its lowest level at 93.4% compared to the fourth quarter of 2019, just before COVID-19. In past economic crises, private consumption showed signs of recovery within one to two quarters, but the COVID-19 crisis has seen prolonged consumption contraction even after one year. KERI stated, "The repeated increase in confirmed cases and strengthening of social distancing are causes of prolonged consumption contraction," and expressed concern that consumption stagnation will continue until herd immunity is achieved by the end of this year.

Exports fell to 82.8% of pre-COVID-19 levels in the second quarter of last year but quickly rebounded afterward, recovering to pre-COVID-19 levels by the fourth quarter.

Source: Provided by Korea Economic Research Institute

Manufacturing Shows V-shaped Rebound... Face-to-face and Service Industries Lag
K-shaped Polarization Deepens by Industry

The polarization by industry due to the COVID-19 shock was clear. Manufacturing GDP quickly rebounded from its low point in the second quarter of last year (90.6% compared to just before the shock), recovering to pre-COVID-19 levels within four quarters after the shock. This recovery speed is faster than the five quarters it took during the IMF foreign exchange crisis and the global financial crisis.

In contrast, the service industry’s GDP in the fourth quarter of last year was only 97.9% of pre-COVID-19 levels, showing a slower recovery than during both the global financial crisis and the IMF foreign exchange crisis. Particularly, industries heavily affected by social distancing such as accommodation and food services, education, and culture suffered severe damage. The quarterly GDP of these industries decreased more sharply than during the IMF foreign exchange crisis and showed no clear recovery trend through the second half of last year due to the resurgence of COVID-19.

KERI expressed concern that "face-to-face service industries such as accommodation and food services may continue to experience the worst recession until vaccination and herd immunity are completed." However, wholesale and retail sectors showed relatively favorable recovery, following a recovery path similar to that during the global financial crisis. This is interpreted as an effect of partially offsetting offline sector shocks due to a 19.1% increase in online shopping transactions last year.

Choo Kwang-ho, Director of Economic Policy at KERI, emphasized, "Our economy is facing the worst situation since the IMF foreign exchange crisis due to COVID-19," adding, "Unlike past crises that showed rapid rebounds after shocks, this crisis is likely to be prolonged until COVID-19 is completely eradicated." He further stated, "The situation of face-to-face service industries, which have been hit hardest by COVID-19, is more severe than during the foreign exchange crisis," and stressed, "Policy efforts should be concentrated to provide practical support to industries affected by COVID-19."

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