Measures imposed in South Korea to blunt a surge in COVID-19 cases would hurt Asia’s fourth-biggest economy, the government said yesterday, after unprecedented restrictions went into effect in Seoul and surrounding areas.
South Korea’s economy shrunk by a seasonally adjusted 3.2 percent quarter-on-quarter in the second quarter, revised central bank data showed, the sharpest contraction since the final quarter of 2008.
South Korean exports fell last month for a sixth consecutive month.
The government unveiled plans to increase spending aggressively over the next few years and said it was prepared to boost policy support should the rate of infection worsen significantly.
“[Some] downturns are inevitable in the real economy due to the tightened preventive measures,” South Korean First Vice Minister of Strategy and Finance Kim Yong-beom said at a policy meeting.
Daily COVID-19 cases have dropped slightly for five straight days, although they have remained in the low-hundreds for nearly three weeks, as a second wave of infections sweeps through densely populated Seoul.
South Korea on Friday last week restricted the operation of restaurants, coffee shops and cram schools in the greater Seoul area. Churches, nightclubs and most public schools had already been ordered to close.
The Korea Centers for Disease Control and Prevention reported 235 new COVID-19 cases as of midnight on Monday, bringing the nation’s total to 20,182 cases and 324 deaths.
To counter a slump in exports and the retail sector, the government said it planned to boost spending on welfare and jobs by 10.7 percent, and allocate 11.9 percent more on social infrastructure projects.
The central bank kept interest rates steady on Thursday last week, but sharply downgraded its growth outlook for this year.
The Bank of Korea said that GDP would likely shrink 1.3 percent this year — the biggest contraction in more than two decades — from a previous forecast for a 0.2 percent decline.
South Korea is gearing up for another year of record bond issuance as the government prepares to boost its budget by 8.5 percent next year, raising questions over the ability of markets to absorb the sales.
The government plans to issue as much as 172.9 trillion won (US$146.1 billion) of sovereign debt next year, based on its budget proposal, South Korean Second Vice Minister of Economy and Finance An Il-whan said.
That would eclipse the 167 trillion won planned for this year, which came as the impact of the pandemic forced policymakers to compile three supplementary budgets.
“Market consensus was that next year’s issuance would be similar to this year’s 167 trillion won — in that regard, the size is not small,” KB Securities Co fixed income strategist Kim Sang-hoon said.
The South Korean government has drafted a 555.8 trillion won budget bill for next year, which is 8.9 trillion won more than this year, including the three stimulus packages to combat the pandemic.
Additional reporting by Bloomberg
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