|Streets are nearly empty after social distancing Level 2 was put in place in Suncheon, South Jeolla Province, Nov. 20. /Yonhap|
By Lee Kyung-min
The recent flare-up of COVID-19 cases topping 300 per day for the fifth consecutive day is a highly troublesome indication that Korea will be unable to benefit from a much-awaited economic recovery any time soon, experts said Sunday.
As the government has decided Sunday to extend social distancing rules to Level 2 in Seoul and its surrounding areas effective Tuesday, it will deal another blow to consumption, dashing hopes of a swift recovery in the fourth quarter.
According to advance data released Oct. 27 by the Bank of Korea, Korea reported 1.9 percent quarter-on-quarter growth in the July-September period, snapping out of two consecutive contractions that began in the first quarter. The economy shrank 1.3 percent in January-March and contracted further by 3.2 percent the following quarter, due in large part to a plunge in exports amid the COVID-19 pandemic.
The same day, Deputy Prime Minister and Finance Minister Hong Nam-ki said the country was slowly but clearly inching towards seeing a V-shaped recovery in the fourth quarter, driven by dramatic third-quarter growth attributable to stronger-than-expected exports.
But a rapid drop in consumption following heightened social distancing rules will pose a major threat to growth, more than offsetting the solid performance of exports.
"Weak consumption can be a major drag to economic recovery," Seoul National University economist Kim So-young said.
Of the three key components that determine the country's growth, investment will have limited swings, and exports seem in better shape than expected.
This means growth prospects, steered mostly by consumption, are certain to lose steam if Level 2 measures are extended to greater areas and stay in place longer.
"Provided that other factors stay roughly the same, the fourth-quarter growth will be determined by whether people spend less and if so, by how much," Kim added.
Seoul National University economist Lee In-ho said the government's recent move to limit the use of government-issued, consumption-bolstering coupons was inevitable.
"The government should act swiftly to prevent the further spread of the virus in the fastest possible way, which can be achieved by suspending the incentives such as free or discount coupons for large cinemas or restaurants," Lee said.
Meanwhile, the virus-induced crisis continues to drive low-income earners further to the brink of economic collapse, as indicated by the number of households that spent more than they earned in the bottom 20 percent hitting a seven-year high in the third quarter. The figure was 50.9 percent, the highest since 2013.
Statistics Korea data showed households in the bottom 20 percent earned 1.63 million won ($1,460) per month, down 1.1 percent from the year before. This is less than 1.88 million won they spent, down 3.6 percent from a year earlier.