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(News Focus) Driven into corner by virus, S. Korean economy gets strong medicine

Economy 10:00 March 04, 2020

By Byun Duk-kun

SEOUL, March 4 (Yonhap) -- Low borrowing costs and expansionary fiscal spending have been helping South Korea's economy chug along. But the outbreak of the new coronavirus and its economic fallout are again casting a cloud on Asia's fourth-largest economy, which had been showing signs of a mild recovery.

With number of COVID-19 cases here topping 5,000 since the first case six weeks ago, a stronger dose of medicine -- an extra budget -- is being revisited as the virus takes a heavy toll on areas ranging from retail to airlines.

The 11.7 trillion won (US$9.82 billion) extra budget proposal, the latest, bolder response to the current virus outbreak, underscores the government's commitment to helping terminate the spread of the new coronavirus and also boosting economic growth.

The extra budget bill, to be submitted to the National Assembly for approval on Thursday, is the country's largest-ever supplementary budget bill to handle the fallout from a contagious disease.

Cargo containers are stacked at a port in South Korea's southeastern city of Busan on Dec. 1, 2019. (Yonhap)

In 2003, the country allocated an additional 4.2 trillion won in the face of the SARS outbreak and then 11.6 trillion won in 2015 to brace for MERS.

"Fiscal spending has always been the last lookout for our economy whenever it was in trouble. (The extra budget bill) contains our firm determination that fiscal spending will again work as a wall against the strong waves of COVID-19," the finance ministry said, adding its extra budget bill will be submitted to the National Assembly on Thursday.

As an urgent step to deal with the virus outbreak, at least 2.3 trillion won from the proposed extra budget will go to improving the country's quarantine system, according to the finance ministry.

South Korea has clearly demonstrated a world-class system and capacity to test and diagnose infection cases, testing thousands of cases daily since the first case was confirmed here on Jan. 20.

However, a shortage of facilities to treat people with highly contagious diseases such as COVID-19 has been identified as a major problem for Asia's fourth-largest economy.

"The extra budget seeks to further improve the country's medical infrastructure related to contagious diseases," the finance ministry said in a press release.

The extra budget also seeks to help revitalize the economy.

The South Korean economy had been estimated to grow 2.3 percent this year, slightly rebounding from last year's 2.0 percent expansion -- the slowest growth in a decade.

Quarantine officials carry out a disinfection operation in Daegu, 300 kilometers south of Seoul, on Feb. 29, 2020, to fight the spread of the new coronavirus in the city. (Yonhap)

But many private institutions have been in a rush to trim their outlooks for the South Korean economy, with their growth estimates averaging roughly 2 percent.

The Bank of Korea (BOK) cut its growth outlook to 2.1 percent last week, with BOK Gov. Lee Ju-yeol hinting at a possible contraction in the first quarter.

"We believe there exists the possibility of negative growth in the first quarter because most of the shock from the virus outbreak will likely emerge in the first quarter," Lee said.

Although the central bank froze the policy rate at a record low of 1.25 percent last month, the bank is widely expected to slash the benchmark rate by at least 0.25 percentage point in April.

South Korea's exports rebounded in February, snapping their 14-month losing streak aided by the improving chip sector and extended working days.

But the spreading new coronavirus across the globe bodes ill for the country's outbound shipments.

Outbound shipments came to US$41.2 billion last month, up 4.5 percent from $39.4 billion posted a year earlier, according to the data compiled by the Ministry of Trade, Industry and Energy.

But the average daily exports fell 11.7 percent last month to $1.83 billion, compared with a 4.6 percent rise in January.

South Korea's shipments of chips, one of the country's mainstay export items, rebounded for the first time in 15 months, advancing 9.4 percent on-year last month to $7.4 billion.

The ministry said the COVID-19 epidemic has emerged as yet another uncertainty for local exporters.

Myeongdong, one of the most famous shopping areas in Seoul, is relatively quiet on Feb. 29, 2020, as the new coronavirus spreads in the country. (Yonhap)

The country's exports to China, the top trading partner and the epicenter of the virus outbreak, dipped 6.6 percent on-year in February to $8.9 billion.

But the daily average outbound shipment to the neighbor sank by a wider margin of 21 percent, according to the data.

"Compared with the previous outbreaks of diseases, such as SARS, South Korea became more dependent on China for exports," Industry Minister Sung Yun-mo said. "Considering China plays a key role in the global supply chain, the country is expected to suffer a bigger setback."

South Korea's annual exports fell 10.3 percent in 2019, hit by a slump in the global chip market, coupled with the lengthy trade feud between the United States and China.

For the year, the country's outbound shipments are forecast to rebound 3 percent on eased trade tension between the country's two largest trading partners.

The latest global outbreak of the new coronavirus, however, has made the target less feasible.

bdk@yna.co.kr
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