hankyoreh

A duty-free shop in Seoul Station is temporarily shut down after it was revealed that a novel coronavirus patient had visited it recently. (Hankyoreh archives)

A state-run think tank has concluded that the spread of novel coronavirus infections will have an unavoidable negative impact on South Korea’s economic recovery. The government has announced plans to mobilize all available policy means to promote an economic rebound, including export support measures planned for this month.

In the February edition of “Economic Trends” published on Feb. 9, the Korea Development Institute (KDI) said that it was “difficult to quantitatively estimate the macroeconomic impact at the present time due to uncertainty in the novel coronavirus’s development,” but concluded that “some degree of negative impact on the economy will be unavoidable going forward.”

Economic trends have shown clear signs of recovery across all areas of production, consumption, and investment since last December, including a renewed increase in mining and manufacturing production on the strength of semiconductors, automobiles, and machinery/equipment, as well as increased manufacturing shipments, a rising average operation rate, a greater increase trend in retail sales, and a renewed rise in facility investment. For a second straight month since January, the KDI concluded that the “economic stagnation has been improving.” But it also predicted that “as worries about novel coronavirus have been reflected chiefly in financial indicators, initial negative influences will be observed in areas related to tourism.”

Fears of dwindling tourism numbers in the wake of the novel coronavirus’s spread have been borne out. According to the South Korean government, the number of Chinese tourists visiting South Korea over the week of Jan. 24-31 after the novel coronavirus emerged was calculated at an average of 1,544 per day, representing a decrease of over 10% from last year. The decline in Chinese tourists -- who represent 34.5% of all foreign tourists visiting South Korea -- has led to a sharp drop in duty-free, hotel, and department store revenue.

With the novel coronavirus originating in the Wuhan region -- a production base for automobile parts within China -- South Korean finished vehicle makers are also taking a direct hit. Both Hyundai Motor and Kia Motors are halting operations at their domestic finished vehicle factories as of Feb. 10. Renault Samsung is suspending production for four days as of Feb. 11, while Ssangyong Motor plans to halt its factory operations on Feb. 12. Exports are also expected to suffer a shock amid their current recovery.

“The possibility is being raised that China’s economic growth rate will substantially decline amid the reduction in operation days due to the novel coronavirus’s spread,” the KDI noted. An economic slowdown for China -- the top importer of South Korean items -- is very likely to translate directly into stagnating demand.

The South Korean government is focusing on developing measures to ensure the embers of the economic recovery are not extinguished. As a first step, support measures for export-focused companies are to be announced next week. Measures to promote domestic demand are also being prepared, including support for small businesses in potentially impacted areas. The next question is when the government introduces the revised supplementary budget variable. While the government has officially dismissed the possibility at present, the option is very likely to be raised again if a protracted novel coronavirus situation begins to hamstring the economic recovery.

By Noh Hyun-woong, staff reporter

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