Korean economy feared to contract in Q1

18-Feb-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

Government vows financial support for virus-hit industries

The possibility has surfaced that the Korean economy could shrink in the first quarter of the year in the aftermath of the faster-than-expected spread of the novel coronavirus, according to global investment banks and economic think tanks, Monday.

They said the viral outbreak’s negative impact on both domestic demand and exports was behind their gloomy outlook.

Morgan Stanley forecast economic growth for the first quarter of 2020 could drop by 0.8 percentage points to 1.7 percentage points, year-on-year, indicating that the country may see a GDP contraction in the first three months of 2020.

J.P. Morgan Chase expects the economy will contract 1 percent in the first quarter from the last quarter of 2019, due to the fallout from 2019-nCoV (COVID-19).

Asia’s fourth-largest economy shrank 0.4 percent in the first quarter of 2019, but expanded 1 percent in the second quarter, 0.4 percent in the third quarter and 1.2 percent in the last quarter.

Moody’s Investors Service cut its forecast for Korea’s 2020 economic growth to 1.9 percent from 2.1 percent, citing the economic fallout from the new coronavirus.

Hyundai Research Institute predicted the economic growth rate for the first quarter may fall by 0.6 percentage points to 0.7 percentage points from a year earlier, if the virus spreads across the country.

Hana Institute of Finance expects the disease will affect all of the nation’s industrial sectors ? not only retail, hotel, aviation and cosmetics businesses, but also manufacturers including IT and automotive firms.

“Korea’s dependence on exports to China and inbound tourists from China is above 30 percent,” said Kim Young-joon, a researcher at the domestic think tank.

“The spread of the novel coronavirus will deal a blow to the Korean economy as it will decrease the number of tourists, reduce domestic demand in China and undermine the global value chain.”

Against this backdrop, the government announced a 420 billion won ($355 million) financial support package Monday as an emergency measure to prevent the economic contraction which has become more likely since the outbreak.

Deputy prime minister and Finance minister Hong Nam-ki said at a ministerial meeting that the government will extend loans at low interest rates to travel agencies, hotels, restaurants, air carriers and shippers.

He added that it will give full support to industry sectors that are facing financial difficulties, due to the declining number of inbound tourists and customers who have refrained from eating out.

“The government will encourage banks to offer 50 billion won in loans with an annual interest rate of 1 percent to small tourism companies,” Hong said.

“The size of a fund raised to support restaurants will be increased from 10 billion won.”

Hong also said the administration will go all out to attract more tourists to Korea, by hosting a Food Festa and repairing facilities at popular tourist attractions earlier than planned.

For the aviation and shipping sectors, the government will offer 300 billion won in loans to local budget carriers and create a 60 billion won fund to support shippers.



Category: Korea

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