Government Warns of Domestic Demand Impact Due to COVID-19 Spread for Two Consecutive Months

Ministry of Economy and Finance Publishes 'Recent Economic Trends (Greenbook January Issue)'

"Concerns Over Domestic Demand Impact from Social Distancing on Face-to-Face Service Industries"
December Consumer Sentiment Index 103.9... Down 3.7 Points from Previous Month

Supply Chain Disruptions and Inflation-Driven Monetary Policy Shift
Ongoing External Uncertainties

On the 3rd, citizens are seen checking the validity of their quarantine passes at a restaurant in Seoul. Photo by Mun Ho-nam munonam@

[Sejong=Asia Economy Reporter Moon Chaeseok] The government has diagnosed concerns that strengthened quarantine measures due to the spread of COVID-19 could negatively impact domestic demand. This marks the second consecutive month of worries about domestic demand instability. It also assessed that external uncertainties continue, including supply chain disruptions and the acceleration of major countries' monetary policy shifts due to inflation (price increases).

The Ministry of Economy and Finance stated in the 'Recent Economic Trends (Green Book January issue)' released on the 14th, "Recently, our economy has maintained a robust export boom and a significant increase in employment, but policies such as social distancing are expected to affect domestic demand, especially in face-to-face service industries."

The Ministry expressed concerns for the second consecutive month, following December last year, that strengthened quarantine policies would adversely affect domestic demand. After attempting to transition to a phased daily recovery (With COVID-19) system in November last year, the spread of the Omicron variant led to reinforced quarantine policies, raising concerns about their impact on domestic demand. In July last year, when the fourth wave of COVID-19 began in earnest, the Ministry used terms like "possibility of increased uncertainty," then "continued domestic demand uncertainty" from August to October, switched to "domestic demand improvement" in November, and reverted to "concerns about domestic demand impact" in December and January.

Looking at the private consumption sector, domestic card approval amounts increased by 18.1% last month, continuing an 11-month consecutive growth trend. However, discount store sales remained at -3.5% last month, following -7.2% in November. The Consumer Sentiment Index also recorded 103.9 last month, down 3.7 points from November.

Prices continued to rise. Last month, the Consumer Price Index increased by 3.7% compared to the same month a year earlier, driven by an expanded rise in personal services. Although this was a smaller increase than November's 3.8%, it remained higher than October's 3.2%, which had a base effect from nationwide telecommunications fee support. The core Consumer Price Index, excluding volatile energy and food items, rose by 2.7%. However, employment somewhat recovered, with the number of employed persons increasing by 773,000 compared to the same month a year earlier.

Kim Young-hoon, head of the Economic Analysis Division at the Ministry of Economy and Finance, explained, "Rather than an overall consumption decrease due to strengthened social distancing, some impact is expected mainly in sectors directly affected by policies such as food service, accommodation, and leisure."

The Ministry also diagnosed that external uncertainties continue, including supply chain disruptions and the acceleration of major countries' monetary policy shifts in response to inflation. It explained, "Externally, while the global economic recovery trend continues, uncertainties persist due to ongoing concerns about inflation and supply chain disruptions, the spread of variant viruses, and the possibility of accelerated monetary policy shifts by major countries." Last month, international oil prices declined due to the U.S. Federal Reserve's accelerated tapering (reduction of quantitative easing) and the spread of the Omicron variant. The price of Dubai crude oil per barrel fell from $81.6 in October to $80.3 in November and $73.2 in December.

The Ministry stated, "We will focus on thorough quarantine responses, ensuring support for damage and economic recovery, and proactive management of living costs to stabilize livelihoods and manage internal and external risks."

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