A time for action
The author is the head of industry team of the JoongAng Ilbo.
The novel coronavirus from China is hitting the Korean economy. Just ten days after the coronavirus outbreak, 104 trillion won ($88.2 million) evaporated from the Korean stock market. It illustrates that worries about the impact on the Korean economy are serious.
The situation is already ominous in production. Korean companies producing semiconductors, displays, appliances and batteries in China are faced with operation halts. The likelihood is high unless the number of the infected in China does not increase and Chinese authorities achieve substantial success in prevention of the spread. The lines of Hyundai Motor and Ssangyong Motor have already been halted as the supply of Chinese parts stopped.
The consumer market is nearly in panic. Department stores, supermarkets and traditional markets have no customers. Small businesses are struggling and gatherings as well as outings are canceled. Online orders and deliveries are flourishing. Many companies have canceled events scheduled for April and May. People are transferring and amplifying fear to one another. Unless the government stops the spread of fear, the impact on the market will continue for sure at least in the first quarter.
The government worked very hard to defend 2.0 percent economic growth rate in the fourth quarter last year. In the process, there were controversies over the excessive boost of the construction market. However, the government’s efforts to defend 2 percent growth is to keep the psychological last line of defense for economic entities. Last year, Korean economy’s sluggish growth was due to structural issues as well as the U.S.-China trade dispute and Japan’s export ban. The year-end was challenging because they were considered geopolitical risks and responses were not thorough.
Korea is a small open economy living off of 1 trillion-dollar trade volume, when combining imports and exports. Export dependency on China is over 25 percent. At this juncture, a good economic report card cannot be expected this year. The government is considering a supplementary economic budget. The decision is yet to be made. It’s true that the 500 trillion-won super budget for this year has been signed only recently. It is not desirable to release money right before a general election. A supplementary budget itself is not desirable as it is drawn from taxes.
Unlike the deadly nature of the novel coronavirus, the fear of the contagion is very serious. The government needs to be alert. It should not hesitate to offer drastic measures, such as a supplementary budget, with support of the citizens and transparently execute it to revive the market. We have the experience of the economy helplessly falling at the time of SARS in 2003 and Middle East respiratory syndrome (MERS )in 2015.
JoongAng Ilbo, Feb. 12, Page 28