Economy faces a black swan

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Economy faces a black swan

The new coronavirus stemming from China is developing into a black swan, or an unexpected event with the potential of grave consequences. Although the impact on the Korean economy so far has been limited, Minister of Economy and Finance Hong Nam-ki said during an economy-related cabinet meeting that if the outbreak is not contained, it could act as a downside risk to the economy.

The market jitters are already evident. Sentiment for both consumers and companies could sour further.

The spread of new coronavirus has already outpaced the speed of the severe acute respiratory syndrome (SARS) outbreak in 2003. SARS and the 2015 epidemic, Middle East respiratory syndrome (MERS), hurt growth by 0.2 percent. Local and foreign institutions have turned more negative. The Bank of Korea estimated the new virus spread would damage the Chinese economy more than SARS. Some think the bruise on the global economy from the new virus outbreak would be three to four times bigger than 2003. China was expanding at the time, but the blow could be bigger as the economy has entered a slowing phase.

The Korean economy has become more dependent on China than in 2003. The fall in stock prices since the outbreak more than doubled the average decline in global markets. A rout in the Chinese market after the Lunar New Year holiday would shake the global market more.
The business and trade front is more worrisome. Companies have begun to shut down factories in China or send Korean staff home. The supply chain in China could be impaired, and Korea’s factory operation rate last year had already been the lowest since the financial crisis. The virus risk from China could hurt Korean manufacturing capacity.

Emergency actions are imperative. The government has expedited its budget for quarantine. But it has yet to come up with measures to aid companies and merchants hit by the virus challenge. Hong said the government will soon unveil measures to help exporters and lessen the damage on the services sector at home. It must devise mid- to long-term strategies to prevent chain corporate bankruptcies due to dwindled consumption and tourists. It must prevent unnecessary scares from rocking the economy, as well as profiteering during times of unrest. And the government must relax regulations to stimulate corporate activities as much as possible.

JoongAng Ilbo, Feb. 3, Page 30
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