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A newly published report gives a detailed reckoning of COVID-19’s impact on South Korea’s real economy, breaking that impact down by company size, income bracket, region, and gender. The report represents the most meticulous diagnosis to date of the Korean economy during the seven months since the COVID-19 pandemic began. As expected, the crisis’s impact has been felt most broadly and deeply in small and medium-sized enterprises (SMEs); in the lowest segments of income earners; among the self-employed, temporary workers, and day laborers; among women; and in the areas of Daegu, Seoul, Jeju, and Incheon.

The report, titled “The COVID-19 Shock: Impact Per Economic Sector,” was published on Aug. 25 by the Hyundai Research Institute (HRI), a private-sector research institution. The report estimated that COVID-19’s impact on South Korea’s macroeconomy this year had slashed nominal gross domestic product (GDP, added value) by 67.2 trillion won (US$56.6 billion and eliminated 678,000 jobs. That amounts to about 3.5% of last year’s nominal GDP (1,919 trillion won, or US$1.62 billion).

The report calculated the amount of damage by comparing South Korea’s estimated economic growth rate, which was revised to -0.5% on Aug. 23, with the forecast of 2.1% made in December 2019. The HRI lowered its growth rate projection to 0.3% this past April and then down into negative territory on Aug. 23 amid concerns that the second wave of COVID-19 this month will cause a second economic shock.

But if the recent resurgence of infections isn’t brought under control, the impact to the South Korean economy in the second half of the year is likely to outstrip projections. “The shock to the South Korean economy began in the first quarter and the economic damage became pronounced in the second quarter. Given growing concerns about a second wave in recent weeks, disease control is becoming even more critical [than relaxing restrictions], even speaking from an economic perspective,” said Joo Won, chief of the HRI’s economic research department. This suggests that the South Korean economy could turn out to be in even worse shape than the “tentative diagnosis” provided by the report.

Economic impact of COVID-19

The COVID-19 crisis was triggered by the “external shock” of an infectious disease rather than by economic factors such as a panic or a financial crisis. Thus, the damage has been especially bad for groups and classes that had already been vulnerable under ordinary economic activities, as several indicators confirm.

Manufacturing output at SMEs had contracted much more than at Korea’s family-controlled conglomerates, known as chaebol. Chaebol in the manufacturing sector saw production rise by 8.7% in the first quarter year on year and then fall by 3.3% in the second quarter. But SMEs experienced a much sharper downturn, shrinking by 1.6% in the first quarter and by 9.8% in the second quarter. SMEs in the service sector also saw their production fall at the rate of more than twice the chaebol, posting a growth rate of -2.3% in the first quarter and -4.7% in the second quarter. This shows that SMEs have borne the brunt of plunging sales as social distancing makes people shun contact, with no way to block or even blunt the damage.

The people who have been hit hardest are the women, irregular workers, and low-income earners who are overrepresented in the SME workforce. The first quintile of income earners (that is, the lowest 20%) saw their earned income, business income, and property income (but not transfer income, which includes emergency disaster relief) fall much more than other quintiles. The first quintile’s income from those three sources fell by 2.3% in the first quarter and 17% in the second quarter, year on year, while the income of the fifth quintile (the top 20%) rose by 2.3% in the first quarter and only declined by 4% in the second quarter.

In terms of employment status, the self-employed faced a bigger shock than wage earners, and the wage earners who suffered the most were temporary workers and day laborers. As of July, the number of wage-earning jobs had fallen by 93,000, down 0.5% from the same month last year, but the number of self-employed had fallen even further, by 128,000, or 2.3%. The COVID-19 crisis has caused large numbers of women (below the age of 60) to lose their jobs. The unemployment rate for women was lower than that of men in both July 2018 and July 2019 but edged above men in July 2020, 4.1% to 4%.

A comparison of 16 metropolitan cities and provinces shows intriguing patterns in the pandemic’s impact. While all areas have been impacted, there are clear regional differences: the manufacturing sector has suffered the biggest blow in Daegu, the service sector in Jeju, and economic sentiment among the working class in Seoul. As of June, production activity in the manufacturing sector had contracted the most year on year in Daegu (-25.4%), followed by Seoul (-22.7%) and Daejeon and South Gyeongsang Province (-16.1%). Seoul was the only region in the country to fall below the national average in both rate of inflation and employment growth rate, both indicators of working-class economic sentiment.

By Cho Kye-wan, staff reporter

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