Prelude to economic woes
It is urgent to push for structural reform
Major economic data shows that the Korean economy is feeling the impact of the coronavirus pandemic. Industrial output, investment and consumption have just begun a downward spiral with business sentiment falling to an 11-year low. Yet this comes as no surprise considering the scope and severity of the economic fallout from the public health crisis.
According to Statistics Korea, industrial output shrank by 3.5 percent in February from a month earlier, marking the steepest fall since February 2011. Facility investment also plunged by 4.8 percent, while consumption tumbled 6 percent. All these point to a deteriorating economic situation.
More seriously, the country may face economic woes unparalleled by any previous calamities such as the 1997-98 Asian financial turmoil and the 2008 global financial crisis. No country is more painfully affected by the virus-triggered catastrophe than South Korea -- a small-scale, open economy which has heavily relied on foreign trade for economic growth.
If there is any consolation, the country's exports decreased a mere 0.2 percent last month from a year before. The Ministry of Trade, Industry and Energy said that outbound shipments totaled $46.9 billion in March, compared with the $47 billion posted in the same month of 2019.
However, industry watchers predict exports will fall considerably this month when the country bears the brunt of the disruption of global supply chains caused by lockdowns and isolations. It will be inevitable for Korea to see a sharp decline in its overseas shipments as major trading partners, including China, the U.S. and Europe, are undergoing the ripple effects of economic contagion.
As things stand now, the country faces a much gloomier growth outlook. According to the Bank of Korea, the business sentiment index (BSI) for manufacturing nosedived to 54 for April from 69 for last month. The index, a barometer of future business prospects, reading is the lowest since March 2009. The BSI for exports fell 16 points to 66 and that for domestic sales was also 15 points lower at 60.
There is no need to mention such dismal figures. Airlines, travel agencies, hotels, restaurants and retail stores have already been experiencing difficulties due to the spared of COVID-19. The manufacturing sector is no exception. The production of automobiles plummeted by 27.8 percent in February. Other key industries such as steel, shipbuilding and petrochemicals also suffered setbacks.
Against this backdrop, the Moon Jae-in administration came up with a 100-trillion-won ($80-billion) economic rescue package last week to help hard-hit businesses, particularly small and medium firms, stabilize people's livelihoods and boost consumption. The central bank also announced a plan to supply "unlimited" liquidity to the market to prevent a credit crunch arising from the epidemic.
The massive fiscal and momentary support programs are crucial in keeping businesses afloat and preventing the economy from collapsing. But this "helicopter money" will not automatically guarantee economic resuscitation. The economy cannot survive the coronavirus tsunami if it fails to regain its competitiveness and growth momentum.
Even before the viral outbreak, the country was going through a prolonged economic slump. So the Moon administration should take the pandemic as an opportunity to push for structural reform. It also must promote deregulation and innovation.
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