Fears of recession

Pre-emptive measures necessary to reduce fallout of virus

Fears of a worldwide economic recession are becoming more palpable as over 70 countries have now reported outbreaks of the new coronavirus. Global stock markets have tumbled last week on growing concerns about the potential damage the virus will inflict on the world economy.

This could not come at a worse time for Korea Inc., which had just showed signs of rebounding after years of sluggish growth. It is time for the government as well as enterprises to map out pre-emptive measures to reduce the economic impact of COVID-19 and brace for worst-case scenario. It cannot be ruled out that the global economy may have entered a long, dark tunnel.

Reduced global demand is particularly painful for the export-oriented Korean economy. According to the Ministry of Trade, Industry and Energy, Sunday, South Korea's exports rebounded in February for the first time in 15 months to $41.2 billion, up 4.5 percent from $39.4 billion a year earlier. However, the recovery ia apparently going to be short-lived as the virus is expected to hit the global economy harder in the coming weeks. Early this year, the country's outbound shipments were forecast to grow 3 percent annually on eased trade tension between China and the U.S., but that target seems to be unfeasible now.

Last week, the Bank of Korea kept its key rate unchanged at 1.25 percent despite concerns about the adverse effects of the virus on the economy. The central bank, however, trimmed its growth outlook for the country to 2.1 percent from the previous 2.3 percent, citing increased uncertainties stemming from the virus. Considering the dismal economic outlook, the government needs to consider a more aggressive interest rate policy and other measures, including tax cuts and special loan programs for struggling enterprises and small businesses.

Major foreign investment banks and economic institutes forecast South Korea's economic growth to be below 2 percent in 2020 due to the fallout of the novel coronavirus. With exports and domestic demand in the doldrums, some foreign institutions have even warned that the economy may contract in the first quarter of this year.

The epidemic will certainly limit Korea's economic recovery. In particular, declining trade with China, the nation's largest trading partner, will remain a key factor as economists expect China's growth to cool sharply. The economy is indeed facing an emergency.

The growing economic fallout has prompted many countries to announce stimulus and monetary measures. South Korea has already announced a $356-million emergency funding plan for struggling airlines, shipping firms, travel agencies and retailers. However, this is surely not enough considering the growing economic fallout of the virus.

It is a step in the right direction that the government has decided to draw up an emergency supplementary budget plan to support its fight against the virus and reduce the potential economic damage. The Ministry of Economy and Finance suggested the extra budget may surpass 6.2 trillion won ($5.12 billion), and the budget plan will be submitted to the National Assembly next week. There should bi-partisan cooperation to ensure fast passage of the budget plan, considering the dire economic situation.