Inevitable Shock Under Social Distancing Level 4... Bank of Korea Predicts 16% Drop in Private Consumption and 8% Decline in GDP

[Image source=Yonhap News]

One-third of the 2nd supplementary budget is related to consumption

Strengthening social distancing may hinder the goal of V-shaped economic recovery

Government takes cautious stance on halting consumption measures

[Asia Economy Reporter Kim Eun-byeol, Sejong= Reporter Moon Chae-seok] The government expects significant impacts on the economy if social distancing levels are raised due to the '4th wave' of COVID-19. The government has identified consumption promotion as a key to economic recovery in the second half economic policy direction. The Bank of Korea predicted in last year's report that if social distancing is raised to the highest level, private consumption could decrease by more than 16%.

According to the Ministry of Economy and Finance on the 8th, the government recently announced in the 'Second Half Economic Policy Direction' that it will revitalize the domestic economy through additional issuance of consumption coupons. Once the first dose vaccination rate reaches 50%, the use of coupons for dining out, sports, movies, exhibitions, and performances will resume, and new coupons for professional sports game tickets will be issued. Among the 33 trillion won scale 2nd supplementary budget bill submitted to the National Assembly, about one-third (approximately 12 trillion won) is allocated to consumption activation.

However, if the highest social distancing level 4 is applied in the metropolitan area, gatherings and events other than briefings, commemorations, and one-person protests will be banned, and businesses such as nightclubs, hunting pubs, and emotional bars will be shut down. Any business violating core COVID-19 prevention rules even once will face a 10-day suspension of operations.

Ultimately, as the COVID-19 situation worsens and social distancing levels rise, the government's economic strategy aiming for a 'V-shaped rebound' through consumption activation is bound to face setbacks. According to the Bank of Korea's monetary and credit policy report from December last year, applying the previous highest social distancing level 3 was estimated to reduce private consumption by 16.6% annually and gross domestic product (GDP) by 8%. A Bank of Korea official stated, "At that time, level 3 was the highest social distancing level, but since then, the levels have been reorganized to include level 4." They added, "Since the criteria and details for applying the levels have changed with the reorganization, it cannot be definitively said that applying level 4 will cause a greater GDP shock."

Meanwhile, the government remains cautious about halting consumption measures. A Ministry of Economy and Finance official said, "The urgent matter now is adjusting social distancing levels, not adjusting the consumption coupon system, so there are no plans to meet with quarantine authorities or discuss adjustments to the coupon system today." They added, "The coupon policy implementation next month was coordinated with quarantine authorities during the preparation of the second half economic policy, so if the spread subsides, the policy will proceed as planned." Lee Eok-won, the 1st Vice Minister of Economy and Finance, also said at the emergency economic central countermeasures headquarters briefing yesterday that the timing of resuming consumption coupons will be "discussed with quarantine authorities."

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