4th COVID-19 wave threatens Korean economy

4th COVID-19 wave threatens Korean economy

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Experts remain divergent on economic prospect for H2

By Anna J. Park

Despite the growing vaccination rate in South Korea, the country’s economic growth is widely expected to be dragged down by the rise in COVID-19 infections, said economists and analysts Tuesday.

Asia’s fourth-largest economy is seeing vaccination rates go up, but it is relatively behind compared to the United States and other developed countries. Because the densely connected global economy means a hit anywhere could have prompt repercussions for others on the other side of the world, Korean policymakers are opening up on the possibility that the economy’s growth this year may be lower than expected.

If the economy sees a contraction or a minimal level of growth during the third quarter, some pundits say the government’s annual target of 4.2 percent for this year will be out of reach.

The core factor is that the Delta variant is highly transmissible and its fast spread could push Korea’s economic recovery into the doldrums, they said.

But it’s unlikely the economy will face the “worst-case scenario” because of additionally scheduled big pandemic relief efforts from the government and higher-than-expected earnings from the country’s main exporters.

“I think the possibility of a contraction in the third quarter is slim,” Park Sang-hyun, chief economist at HI Investment & Securities, said. “The country’s exports and investment still show a sturdy flow, and if a supplementary budget passes the National Assembly in August, its positive impact could soon be reflected in the economy.”

The economy may see its annual economic growth rate retract more than earlier expected, hit by the spread of the variant, but the virus will have limited impact on the economy in the third quarter. Park said if the current resurgence could be somewhat tempered down by autumn, the country’s economy shouldn’t run into too much trouble.

The Bank of Korea (BOK) recently assessed the economy will rise between 4.1 percent and 4.2 percent this year, but only if the country’s quarterly growth rates for the second, third and fourth quarters each exceed 0.6 percent.

Unsurprisingly, other experts view the current threat more seriously.

“Traditionally, the third quarter ― July, August and September ― is when we see a rise of retail consumption and domestic demand. However, the current private consumption shows signs of shrinking due to the resurgence of the pandemic, making it harder for the country’s annual economic growth rate to reach the 4 percent range,” Joo Won, deputy director of the Hyundai Research Institute, said.

The institute decided to maintain its earlier prediction of 3.5 percent growth for this year, while the Korea Development Institute (KDI) forecast 3.8 percent.

The key is how long the current level of social distancing will continue. If it continues throughout the third and fourth quarters, it will have a huge negative impact on private consumption, they said. But if the economic rebound could resume by autumn, then the country could continue toward its growth goal of the 4 percent range this year.

“Despite the uncertainty, the resurgence of the pandemic won’t affect the economic growth rate significantly, as long as the social distancing and control measures could bear positive results soon,” BOK Governor Lee Ju-yeol said recently.

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