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Report VOD

Outlook for Korea’s Macroeconomic Path: Based on the Spread of COVID-19
For more information
How will COVID-19 change our economy?

To date, the economic growth rate has fallen 1.3%, and the contraction has been mainly centered around the service industry.

If the global spread of COVID-19 is short-term, the economy will be able to regain momentum as the service industry recovers.

But, if the health crisis becomes protracted, a global recession will ensue, and the consumption of durable goods and investment will contract.

The impact will be especially big for Korea compared to other countries due to its dependence on the manufacturing industry which primarily exports capital and intermediate goods which are closely tied to investment.

In order to predict how the Korean economy will be affected, KDI constructed and analyzed different hypothetical scenarios.

Firstly, if the number of infection cases decreased from the first half in Korea and from the second half overseas, growth is expected to mark 0.2% in 2020.

The domestic consumption of foreigners, which lost momentum in the first half, will exhibit a rebound in the second.

However, due to the very slow easing of social distancing measures and travel bans, the overseas spending of residents’ and domestic spending of foreigners’ will remain sluggish into the coming year.

Exports will gradually recover from the latter half as overseas investment picks up. And, the recovery in employment will be delayed even if domestic economic activities normalize in the second half.

It is also expected that next year’s GDP will fail to return to the previous trajectory. Secondly, if the global spread of COVID-19 is decelerated by the development of treatments and a vaccine, growth will post 1.1%.

Consumption by both domestic and foreign tourists will stall until year-end due to fears over traveling abroad under the current conditions. Nevertheless, a recovery could be seen in domestic consumption, exports and employment as global investments rally, and GDP could get back on track by the end of 2020.

Lastly, if a second wave of COVID-19 sweeps across the globe, economic sentiment will continue to contract, and growth will fall to the ?1.6% range.

Exports will exhibit a sharp drop and then slowly recover from next year, while consumption remains sluggish.

If vulnerable firms and households go bankrupt, and unemployment becomes rampant, the subsequent non-performing loans could push the financial market into a liquidly crisis.

Ultimately, even if COVID-19 is reigned in, the economic recovery will be slow, and overall productivity will be diminished, GDP will continue to hover significantly below previous levels in 2021 and there may be downward adjustments in the mid- to long-term. Mid- to long-term outlook

(Interview with the author)
COVID-19 is rapidly curtailing Korea’s economic growth trend. If large corporations file for bankruptcy and unemployment rises, the recession will exacerbate, and a recovery will become even more difficult. Therefore, we need active policies in place to provide hard-hit households and firms with loans and to protect our jobs. However, to ensure that these efforts are not seen to be draining Korea’s mid- to long-term fiscal soundness, the government will have to announce clear plans on how it will manage the country’s finances after the health crisis and show a willingness to do so. Also, measures are needed so that the resources provided through extensive support policies do not continue to be injected into declining industries, restricting the development of new growth engines.
Moreover, cooperation is needed on a global scale to respond to the economic damage from COVID-19 through delayed loan repayments for emerging economies and currency swaps.

VOD 5results

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    우리 경제는 2020년에 –1.1%의 역성장을 기록한 후, 2021년에는 상품수출의 개선에도 불구하고 내수 회복이 제한되면서 3.1% 성장할 전망임. 소비자물가는 유가 상승에도 불구하고 기대인플레이션과 수요 압력이 낮은 수준에 머물면서 0.7%의 낮은 상승세를 지속할 것으로 예상됨. 취업자 수는 코로나19 확산으로 인한 서비스업의 부진이 지속되면서 10만명정도 증가하는 데 그칠 전망임.
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    최근 우리 경제는 코로나19가 빠르게 재확산되면서 경제성장률이 더 낮아지고 경기 회복도 지체될 가능성이 높아짐. 코로나19의 확산이 지난 5월 KDI 경제전망에서 전제한 기준 시나리오보다 하위 시나리오와 유사하게 전개되고 있어, 우리 경제의 2020년 성장률도 기준 시나리오상의 예상(0.2%)을 큰 폭으로 하회할 가능성이 있음. 민간소비는 대면접촉이 많은 서비스부문이 큰 폭으로 감소하고, 정부정책 영향의 축소로 소비재도 조정되면서 부진한 모습임.
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    ○ 우리 경제는 2020년에 민간소비와 수출이 큰 폭으로 위축되며 0.2% 성장한 후, 2021년에는 양호한 회복세를 나타내며 3.9% 성장할 전망임.

    ○ 소비자물가 상승률은 기대인플레이션의 하락세가 지속되는 가운데, 경기 위축과 유가 하락 등이 겹치면서 2020년에 0%대 중반을 기록하고, 2021년에도 0%대 중후반의 낮은 상승률을 지속할 것으로 예상됨.

    ○ 취업자 수는 대면접촉이 많은 서비스업에서 발생한 충격을 정부정책이 부분적으로 보완하면서 2020년에는 2019년과 유사한 수준을 유지한 후, 2021년에는 고용 부진이 완만하게 회복되며 20만명 정도 증가할 전망임.
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    With COVID-19 blocking all airways, 260 travel agencies have reported business closures, so 2 agencies or more are shuttering per day.

    The IMF has warned that the world faces the worst recession since the Great Depression, and many around the globe are bracing for an employment crisis.

    Although existing jobs are also at risk, the biggest impact is expected to be felt by the youth population who are preparing to enter the labor market.

    So, how much will the spread of coronavirus affect youth employment?

    To find out, KDI examined the conditions before and after COVID-19.

    The official statistics shows that the youth employment rate was on an upward trend before the pandemic.

    But, due to the significantly low teen employment rate, another analysis was conducted which controlled the population composition to assess whether the growth in youth employment was driven by a decreasing teen population and an increasing over-20 population during the past 5 years.

    The results found that the youth employment rate was, in fact, falling until September of 2019.

    The service industry saw a decline in youth employment as the number of Chinese tourists dropped sharply at the end of 2016 as did the manufacturing industry due to its restructuring.

    The extension of the retirement age also had a negative impact on youth employment

    Improvements were observed from October 2019 in services, thanks to the growing domestic consumption of services and increasing number of foreign tourists, and also in manufacturing.

    There was also a downturn in the unemployment rate during the same year.

    But, this was significantly affected by the surge in the economically inactive youth population. In particular, the number of young people who gave up their job seeking activities increased, with many choosing to return to school or to rest.

    After exhibiting an upswing, the youth employment rate reversed back down from February, and exacerbated in March.

    The implementation of social distancing measures delivered a huge blow to the service industry, especially to tourism and education related sectors, which were previously regaining momentum.

    According to the Korean job search engine, Saramin, new job postings plunged 44.4%.

    What is more, employment is expected to further contract across all industries as overseas demand shrinks on the global spread of COVID-19.

    In fact, overseas factors were the main drivers of Korea’s falling employment rate during the global financial crisis.

    Youth employment fell by the biggest margin, and the recovery was slow.

    Then, will the aftermath of COVID-19 stop at just delaying the employment of young people?

    Our analysis finds that those whose entrance into the labor market is delayed by one year are paid 8% less during their first 10 years due to the loss of career opportunities.

    Even if individuals manage to find jobs during the recession, if the conditions are bad, then their wages after ten years and future employment will both be affected.

    (Interview with the author)
    While many jobs are threatened in the wake of COVID-19, the issue of youth employment requires a special attention because the younger generations will be the supporters of our aging society.
    Even if the coronavirus crisis is short-lived, it could take a considerable length of time for hirings to recover. Therefore, support policies such as subsidies to promote employment must be expanded to bolster new recruitment activities.
    In preparation for a prolonged recession, workers for the health and IT industries should be fostered and education should be reformed accordingly.
    Meanwhile, countermeasures must be put into place to prevent youths who are unable to find employment from falling through the cracks of social safety nets.
  • For more information
    How will COVID-19 change our economy?

    To date, the economic growth rate has fallen 1.3%, and the contraction has been mainly centered around the service industry.

    If the global spread of COVID-19 is short-term, the economy will be able to regain momentum as the service industry recovers.

    But, if the health crisis becomes protracted, a global recession will ensue, and the consumption of durable goods and investment will contract.

    The impact will be especially big for Korea compared to other countries due to its dependence on the manufacturing industry which primarily exports capital and intermediate goods which are closely tied to investment.

    In order to predict how the Korean economy will be affected, KDI constructed and analyzed different hypothetical scenarios.

    Firstly, if the number of infection cases decreased from the first half in Korea and from the second half overseas, growth is expected to mark 0.2% in 2020.

    The domestic consumption of foreigners, which lost momentum in the first half, will exhibit a rebound in the second.

    However, due to the very slow easing of social distancing measures and travel bans, the overseas spending of residents’ and domestic spending of foreigners’ will remain sluggish into the coming year.

    Exports will gradually recover from the latter half as overseas investment picks up. And, the recovery in employment will be delayed even if domestic economic activities normalize in the second half.

    It is also expected that next year’s GDP will fail to return to the previous trajectory. Secondly, if the global spread of COVID-19 is decelerated by the development of treatments and a vaccine, growth will post 1.1%.

    Consumption by both domestic and foreign tourists will stall until year-end due to fears over traveling abroad under the current conditions. Nevertheless, a recovery could be seen in domestic consumption, exports and employment as global investments rally, and GDP could get back on track by the end of 2020.

    Lastly, if a second wave of COVID-19 sweeps across the globe, economic sentiment will continue to contract, and growth will fall to the –1.6% range.

    Exports will exhibit a sharp drop and then slowly recover from next year, while consumption remains sluggish.

    If vulnerable firms and households go bankrupt, and unemployment becomes rampant, the subsequent non-performing loans could push the financial market into a liquidly crisis.

    Ultimately, even if COVID-19 is reigned in, the economic recovery will be slow, and overall productivity will be diminished, GDP will continue to hover significantly below previous levels in 2021 and there may be downward adjustments in the mid- to long-term. Mid- to long-term outlook

    (Interview with the author)
    COVID-19 is rapidly curtailing Korea’s economic growth trend. If large corporations file for bankruptcy and unemployment rises, the recession will exacerbate, and a recovery will become even more difficult. Therefore, we need active policies in place to provide hard-hit households and firms with loans and to protect our jobs. However, to ensure that these efforts are not seen to be draining Korea’s mid- to long-term fiscal soundness, the government will have to announce clear plans on how it will manage the country’s finances after the health crisis and show a willingness to do so. Also, measures are needed so that the resources provided through extensive support policies do not continue to be injected into declining industries, restricting the development of new growth engines.
    Moreover, cooperation is needed on a global scale to respond to the economic damage from COVID-19 through delayed loan repayments for emerging economies and currency swaps.