The fourth wave of the COVID-19 pandemic is likely to put the brakes on South Korea’s economic recovery, darkening the nation’s growth outlook for the third quarter, according to economists Sunday.
"Daily new infections rose sharply during the summer vacation season, when private consumption is expected to grow. Possibilities remain that the local economy could contract in the third quarter, affected by the virus resurgence and the toughest Level 4 social distancing," said Joo Won, chief economist at the Hyundai Research Institute.
A surge in COVID-19 cases and subsequent tighter social distancing measures have dealt a harsh blow to businesses that provide face-to-face services. The government placed the Greater Seoul area under Level 4 social distancing rules, the highest in the system, for two weeks starting last Monday as the nation’s daily new case count surpassed the 1,000 mark.
"Regardless of sound export performance, a decline in the nation’s economic growth rate is inevitable if real economic activity slows down. GDP growth this year is projected to be around 4 percent, but I think it will remain in the 3 percent range or reach just slightly below 4 percent," said Sung Tae-yoon, a professor of economics at Yonsei University.
Asia’s fourth-largest economy has been on a modest recovery track amid robust exports, which jumped nearly 40 percent on-year in June, continuing an upward trend for eight consecutive months on the back of a recovery in global business activities, which led to stronger demand for chips and automobiles.
Buoyed by signs of recovery, the Ministry of Economy and Finance forecast that the country’s economy would expand 4.2 percent this year, up from its December estimate of 3.2 percent.
Despite the mounting market skepticism, the government reiterated its positive outlook for the local economy, expressing confidence in its stringent social distancing system and stimulus measures.
"By bringing the fourth wave of the outbreak under control through strong distancing measures, the government could achieve the 4.2 percent policy target," Finance Minister Hong Nam-ki said.
Also, even if the nation’s economic growth rate for the third quarter is near zero, this year’s figure could reach 4.2 percent as expected driven by the envisioned supplementary budget and an additional round of relief cash, which are expected to drive up the growth rate for the fourth quarter into the 1 percent range, according to the ministry.
By Choi Jae-hee (email@example.com