South Korean president Moon Jae-in has warned that the economic crisis stemming from coronavirus is only just beginning as he unveiled a sharp increase in spending to deal with the fallout of the pandemic to almost $200bn.
The new measures highlight the long-term economic challenge for countries even after they have dealt with the immediate public health crisis.
“We are at the beginning stage of a crisis. A hiring freeze together with a corporate crisis is looming,” said Mr Moon. “A broader hiring shock that we have never experienced before may be coming. We need stronger government measures and should execute them in a bold manner.”
The government on Wednesday committed a further Won85tn ($70bn) for the country’s worst-hit industries, small businesses and workers, adding to $120bn in stimulus and support measures that had been previously announced.
The new measures were taken after data showed Asia’s fourth-largest economy continued to be battered amid a looming global recession. Outbound shipments for the first 20 days of April shrunk by almost one-third. In March, the country saw the worst monthly jobs data in more than a decade.
The sobering economic data came despite the country’s relative success in containing an outbreak that was for a time the biggest outside of China.
Health officials in Seoul announced 11 new virus infections on Wednesday, down from a peak of more than 900, following a successful programme of mass testing, contact tracing and social distancing.
“The government has succeeded in bringing the outbreak under control but the problem is that South Korea is an export-driven economy heavily dependent on overseas demand,” said Oh Seok-tae, a Seoul-based economist at Société Générale.
South Korea has eased social distancing measures ahead of many other countries but Nguyen Trinh, an economist at Natixis, warned that the economic outlook remained bleak.
“April exports point to very weak global demand and so the second quarter will not be much better than the first quarter, even if domestic mobility recovers,” she said.
Mr Moon said Won40tn ($32bn) had been earmarked for industries including carmakers, telecoms, airlines and shipbuilders. Emergency financial relief funds for small merchants was extended by Won35tn and job protection schemes by Won10tn.
The South Korean government will buy stakes in companies involved in public infrastructure or provide debt guarantees, as well as injecting more liquidity. The support will be conditional on companies protecting jobs, advancing corporate restructuring and sharing profits with the public.
“Our infrastructure industries, which have a great impact on our economy and employment, are facing a big threat. We are beginning to see companies that find it difficult to overcome the difficulties with just temporary funding or liquidity supply,” Mr Moon said at an emergency economic meeting.
Other key economies in the region, including Japan, Hong Kong and Singapore, have each announced their own unprecedented spending and market support measures in recent weeks. Tokyo’s spending package is now worth Y117tn ($1.09tn), including loan guarantees, while Hong Kong and Singapore are spending HK$287.5bn and S$63.7bn, respectively.
Analysts, however, caution that moves to reopen economies risk causing further outbreaks, particularly after recovery efforts in some countries have been derailed by new waves of the virus.
“The best exit scenario seems to be gradually reopening the economy and seeing how it affects the virus situation,” said Mr Oh.
Additional reporting by Robin Harding in Tokyo, Nicolle Liu in Hong Kong and Stefania Palma in Singapore
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