Resilience in times of crisis ... How did South Korea's economy survive Corona?

It appears that South Korea has found a way to mitigate the health and economic impacts of the Coronavirus pandemic. At a time when the United States is fighting a permanent pandemic and struggling with a slowing economic recovery, Seoul has found a way to overcome these two obstacles.

In a report published by the American Foreign Policy magazine, writer Morten Saundergard Larsen said that in the latest economic forecast issued by the Organization for Economic Cooperation and Development, South Korea is looking for the total contraction in GDP for 2020 to reach only 1%. It is a proportion that ranks second among the major economies, after China.

In contrast, GDP in the euro area is expected to contract by about 8%, and the United States could experience a year-long contraction of nearly 4%.

According to the chief economist of the Organization for Economic Cooperation and Development - Lawrence Boone - the world is facing the most serious economic slowdown since World War II, and the organization’s statement confirms that the economic success of South Korea was recorded at the same time that the country succeeded in eliminating the epidemic, which partly explains Korea’s ability Southern region to withstand economically, based on its highly effective management of the epidemic.

The writer stated that the United States and South Korea recorded the first case of Coronavirus infection on the same day, and since then, cases in South Korea reached a peak of 851 new daily cases in March, while cases in the United States never stabilized until mid-July As cases reached a peak of 74,818 confirmed cases in one day, while South Korea recorded 7 deaths per million people, the United States witnessed nearly 600 deaths per million people.

The writer noted that South Korea's effective handling of the pandemic made imposing a strict national lockdown - the kind that crippled entire European economies for months in a row - largely unnecessary in the country, which in turn reduced the economic imbalance.

According to Christophe Andre, chief economist at the Organization for Economic Cooperation and Development in South Korea, the main reason for South Korea's success is its ability to contain the epidemic much better than others, so economic activities have been disrupted only to a very limited extent, and this can be seen in the mobility data. Related to Google, which shows that South Korea has barely changed its usual procedures after the outbreak in late February.

South Korea's effective handling of the pandemic has made imposing strict national lockdown unnecessary in the country (European News Agency)

Strong financial response

Although South Korea has not been affected to the same extent as other countries, it has prepared a fairly strong fiscal response, allocating about $ 12.2 billion (equivalent to 0.7% of GDP) to businesses and citizens in early spring.

The financial response to South Korea was not as large as that of countries such as Germany, which launched a stimulus package equivalent to 4% of GDP, but because Seoul provided support quickly, it helped prevent a drop in consumption, and it continues to provide support in the form of loans and guarantees totaling about $ 230 billion.

More importantly, South Korea continued to provide financial aid, last week announcing the fourth round of stimulus by adding $ 6.5 billion, which contrasts with countries such as the United States that have begun to spend massive fiscal and cash spending slower since it occurred from efforts to stimulate the economy.

André of the Organization for Economic Cooperation and Development said the fiscal response was one of the keys to getting domestic consumption back on track.

The financial response in South Korea was more effective compared to other countries, as many services were available to spend those cash payments on them, which translated into more consumer spending and less savings. While South Korean consumers spent a large part of the stimulus money, many families deliberately The US simply saved up the famous $ 1,200 stimulus checks.

Some South Korean provinces have taken creative solutions to ensure government payments are recycled into the economy and help boost consumption.

For example, Lee Jae Myung, the governor of the most populous Gyeonggi Province, decided to test non-cash payments. Each resident got about $ 85, an amount that can be spent over a period of 3 months, but these payments came in the form of local currency that can only be spent In district stores, no cash can be saved.

Despite the relative success that South Korea has achieved so far, it is still fighting the repercussions of the Corona virus, as the country recorded between 100 and 200 new cases per day for more than two weeks, which raised fears of another wave, and Seoul was forced to restrict activity Commercial, such as allowing restaurants to only serve fast food after 9 pm.

South Korea's export-oriented economy faces great risk as the epidemic continues to hamper cross-border trade (Reuters)

Control of the epidemic and the economy

South Korean President Moon Jae-in said that the government is passing through a critical phase between controlling the virus and the economy, and after pressure from local companies, Seoul has eased these restrictions again, two weeks after they came into effect.

The writer warned that the South Korean economy may be affected more than expected, and it is noteworthy that the central bank last month lowered its forecast for the economy to contract for the whole year by 1.3%, which is a big jump from its more positive previous estimates.

As in many countries, officials are concerned about the sustainability of large fiscal stimulus packages that could mitigate the short-term damage of the pandemic, at the expense of a build-up of long-term debt.

The writer quoted Lee Doon, an economist at Yonsei University in Seoul, as saying, "This program is basically government support for the Korean people, but the problem lies in the fact that we cannot provide subsidies forever, and because of these subsidies, the balance of the Korean government budget is ... Deteriorate. "

As for South Korea, the export-oriented economy is at great risk as the epidemic continues to impede cross-border trade, and South Korea relies a lot on international trade, and because of this epidemic, global trade has shrunk and this has had a negative impact on the export industry.

Bon from the Organization for Economic Cooperation and Development confirms this, noting that South Korea's hopes for recovery over the next year depend on the virus’s cloud being dispersed from the rest of the world, and this matter is beyond Seoul’s control. “Looking to the future, Korea is highly integrated in the economy. For this reason, the global recovery will either be limited or strengthened by the size of the recovery in other countries. "