The Bank of Korea said Korea’s economic growth could fall to zero percent if the coronavirus crisis does not ease in the second quarter. But even that appears to be an optimistic view. The Korea Economic Research Institute this week forecast that Korea’s economy will shrink 2.3 percent this year, while Nomura Securities, S&P and other global institutions have also projected negative growth. The only times the Korean economy shrank were during the oil shock in 1980s and the Asian financial crisis in late 1997.
Korea was already facing a crisis even before the epidemic. The country’s growth fell to a 10-year-low of two percent in 2019, while industrial output, private consumption and corporate investments all shrank early this year. This led to cash shortages. Last year, 21 percent of listed companies suffered poor operating profits and were unable to even service their debts, while money-losing inventory levels rose 10 percent over the past year to a record high. Factory operation rates slowed to around 70 percent.
All of this happened before the epidemic erupted due to policy blunders by the government that forced almost a million small businesses into bankruptcy while jobs disappeared. Then COVID-19 made everything worse. Now Korea’s airline, tourism, restaurant and clothing businesses are teetering on the brink of bankruptcy, while the petrochemical, automobile, shipbuilding and heavy industries are laying off workers, sending others on rotational leaves or cutting down on output to stay afloat.
Many companies say they are unable to pay their staff. Nine out of every 10 businesses said in one survey that they will not last another five months. The state of the U.S. economy is especially worrying. There are even forecasts that the American economy will shrink 30 percent in the second quarter. That economic tsunami will swamp the Korean economy.
The government’s current emergency measures are geared only toward low-income households and small businesses. It plans to shower astronomical amounts of money on them. Major businesses, which are the pillars of the economy, are scurrying to obtain cash, but the government is turning a blind eye to their plight, probably because big businesses do not account for many votes. At this rate, big businesses too may face closure. The government cannot sit by idly and watch the fire grow out of control. Voters in the general election next week must cast their ballots wisely to make sure that the timing for much-needed policy changes is not missed.
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