NABO Economic· Industrial Trends & Issues (No. 7)
Published on July 24, 2020
Published by Macro-Economic Analysis Division, Economic Analysis Department
I. Economic·Industrial Trends
Recently, the Korean economy has seen some improvement in domestic economic indicators thanks to some policy implementations, but exports and manufacturing production have declined due to the COVID-19, and ongoing difficulties with employment. In June, although the decrease rate (-10.9%) in exports fell further from the previous month due to an increase (2 days) in the number of days for customs clearance, daily average exports continued to decline significantly (-18.5%). Although the labor market is showing gradual resumption of economic activity, with the number of those temporarily laid off falling compared to the previous month, overall employment indicators remain sluggish. Nevertheless, some domestic economic indicators, such as retail sales and service industry production, which benefited from the policies implemented, including emergency relief payments and the transition away from quarantine measures to “distancing in daily life”have improved. Consumer prices rebounded from negative (-0.3%) last month to 0.0% YoY. The financial market seems to be stabilizing with treasury bond yields (0.85%) and the won-dollar exchange rate (1,208 won) falling, and share prices rising (2,108pt).
Ⅱ. Pending Economic·Industrial Issues
■ Human-mobility volume trends and implications following the outbreak of COVID-19
The human-mobility volume in Korea decreased up to 70.6% compared to the same period last year in the 4th week following the COVID-19 outbreak, but recovered to 92.7% in the 22nd week (June 26~ July 5) YoY. However, due to continued concerns about collective infection, recovery of human-mobility volume in some regions (commercial areas, etc.) or some age groups (over 70s) has been limited. As the recovery rate of the reduced human-mobility volume in Korea has been relatively faster than that of other major countries with a voluntary quarantine system in place, economic recovery to the pre-pandemic level is expected to accelerate.
■ Green New Deal's domestic and foreign discussion trends
The government plans to invest 73.4 trillion won in eco-friendly future mobility, green remodeling, and green energy, etc. by 2025 by promoting the Green New Deal as part of the“Korean New Deal”package. With the International Climate Change Convention requiring further GHG reductions, it should be noted that the Green New Deal is aligned with the global effort of countering climate change. Thus, the effectiveness of the detailed implementation plan should be reviewed.
■ Global economic growth forecast by scenario for major international organizations
With the spread of the COVID-19, all major international organizations (IMF, OECD, World Bank) lowered their global economic outlooks for 2020. The IMF and the OECD pointed to the possibility of another wave of the virus, and predicted a further drop in the global economic growth rate should it occur. Major international organizations recommend countries proactively support policies that prevent further spread of COVID-19 and normalize economic activity.
■ Recent trends in housing markets in metropolitan areas and major details of real estate policies
With the increasing net influx of peoples into metropolitan areas and growing demand for housing due to abundant liquidity, the number of housing completions and permits are on the decline. Under these circumstances, the main contents of the government’s recently announced, "Management Measures to Stabilize the Housing Market (June 17),” and "Complementary Measures to Stabilize the Housing Market (July 10),” to prevent overheating of the housing market have been reviewed.
Ⅲ. Economic · Industrial Issues
■ Analysis of the economic ripple effect of emergency relief payments
By using the interregional industry relations table of 2013 (interindustry relations table in 2018), the economic ripple effect of each region and industry following emergency relief payments was estimated. The analysis indicates that selective support requiring detailed conditions may have limited policy effects due to enforcement difficulties, and the effect of emergency relief payments may be reduced due to spending cuts in other sectors (restructuring) to raise funds. In addition, there seems to be a large variation in the proportion of ripple effects by region, and by industry, 60~80% of the ripple effect seems to occur in the service industry. Considering that the size of the ripple effect by region and sector may vary depending on the level of advancement by industry sector, ascertaining the equity and efficiency of each region and industry before drafting policies might be needed in the future.
■ Analysis of the Consumer Sentiment Index (CSI) in predicting private consumption
The spread of the COVID-19 pandemic led to a sharp drop in the CSI. Analysis of the factors that determine the CSI indicate that disposable income, the stock index, the Composite Leading Indicators Index, and lagged value of CSI seem to have a positive (+) effect on consumer sentiment, improving consumer sentiment. Furthermore, the CSI leads private consumption by 1~2 quarters, and is found to have predictive power. In order to prevent consumer sentiment from sagging after the spread of the COVID-19, leading to long-term sluggish private consumption, support measures need to be implemented to improve consumer sentiment, such as helping to improve household income conditions.