Economic shocks from the coronavirus pandemic are deepening.
Bank of Korea Gov. Lee Ju-yeol said Thursday that it will not be easy for the South Korean economy to grow 1 percent this year even if the pandemic subsides in the second quarter. The Korea Economic Research Institute forecast minus 2.3 percent, and global institutes including Nomura Securities and Fitch Ratings projected that Korea will show negative growth this year.
The Korean economy shrank on two occasions, in 1980 (minus 1.6 percent) when it was hit hard by the second oil crisis and in 1998 (minus 5.1 percent) when it sought a bailout from the International Monetary Fund.
Korea was already mired in an economic downturn even before the coronavirus outbreak. Last year, its growth hit a 10-year low of 2.0 percent year-on-year.
In February, production, consumption and investment all marked negative growth. Output and consumption decreased the most since 2011.
Self-employed businesspeople and companies were suffering from shrinking domestic sales and decreasing exports. According to the research institute’s analysis of 685 Kospi-listed companies, 21 percent earned less last year than they paid in interest on their bank loans.
In this situation, the pandemic dealt a further blow to the Korean economy.
The airline, tourism and food service industries are close to starvation. Large companies in such key industries as petrochemicals, automobiles, shipbuilding and heavy industries are struggling to keep their heads above water. They have taken painstaking self-rescue steps such as cutting back jobs, sending employees on furlough and reducing output.
According to a survey of 366 companies by job search engine Saramin, 9 in 10 said they could not endure the impact of COVID-19 for more than five months.
The US economy is showing worrisome signs, too. The forced closure of businesses across the US and the resulting surge in unemployment due to the pandemic will cause growth to contract by as much as 30 percent in the second quarter, according to a Pacific Management Co. economist’s forecast.
The global economy is at risk of getting trapped in a vicious circle of a slump in the real economy and corporate bankruptcies due to a temporary lack of funds.
The Korean government delivered lukewarm responses, while other countries released hefty business support measures.
The US Congress passed a massive $2 trillion stimulus package that provided $500 billion in aid for corporations, including airline companies.
Germany decided to create a 600 billion euro ($656 billion) “economic stabilization fund” offering 400 billion euros’ worth of debt guarantees, 100 billion euros either to lend directly to troubled firms or buy stakes in them, and 100 billion euros to fund a state investment bank.
Korea unveiled a 100 trillion won ($82.4 billion) emergency rescue package for businesses and a 36 trillion won assistance package for exporters. But most of the packages are focused on small and medium-sized firms and self-employed businesspeople.
It is right to prop up small businesses intensively in the early days of economic damage from the epidemic, considering they are among the most vulnerable. But if the pandemic drags on, it is not only small and medium-sized businesses that can ill afford to endure.
Large companies, the mainstay of a national economy, are in need of short-term liquidity. They demand that the government draw up support measures quickly.
A lobby for car and car parts industries called for the government to provide 33 trillion won in liquidity. Overseas car assembly lines have stopped. Airline companies are on the verge of collapse. They have repeatedly asked for special fiscal help, loan guarantees and tax breaks. Air carriers utilize less than 10 percent of their passenger aircraft fleets.
The government says it will back up key industries, but has not unveiled measures yet. Companies are barely holding on, with an array of emergency steps. Large companies, if left as they are in several months, may face the risk of going technically bankrupt as they run out of cash temporarily.
Of course, the government cannot inject fiscal resources into nonviable zombie companies. But large companies must not be put on the back burner. The government should look around and must not miss the golden hour of support.