Experts say S. Korean economy will be relatively unscathed by COVID-19 but warn massive debt crisis may ensue
Updated: 2020-05-20 05:21:41 KST
The worldwide pandemic has paralyzed the global economy in ways not seen since the Great Depression of the 1930s.
It's clear no economy will exit the crisis unscathed, projected to contract sharply by minus three-percent this year, much worse than during the 2008 global financial crisis.
South Korea is one of the few countries that may still end the year in positive territory.
But concerns remain over the country's declining exports and a mounting debt crisis as the government introduces a series of massive stimulus plans.
To discuss how the country can minimise the economic fallout of COVID-19, we're joined today by Dr. Yang Jun-sok, Professor of Economics at the Catholic University of Korea.
And Dr. Warwick McKibbin, Professor of Public Policy at Australian National University and Senior Fellow at the Brookings Institution.
Professor Yang: The South Korean economy shrank 1.4 percent in the first quarter of 2020. Do you expect the economy to fare worse in the months to come? With the country being an export-dependent economy, what kind of impact do you expect to see?
Professor McKibbin: Projections for South Korea's economic growth this year differ greatly. HSBC, Credit Swiss and Bank of America for instance forecast 0.2 to 0.3% percent in GDP growth which is still in the positive territory. But the numbers fall to minus zero point 4, and up to -5.9 percent by Nomura. What's your projection? How will it fare compared to other economies in the G20?
Professor Yang: Still, some have said the South Korean economy will suffer significantly less compared to the United States, China or European nations. Why do you think this is?
Professor McKibbin: Around a million people in South Korea lost their jobs between January and April this year. The government has announced its third stimulus plan worth $32.4 billion to increase subsidies to keep more people in employment and help businesses stay afloat through the course of the pandemic. An IMF official recently criticised the handout of emergency payouts or universal income. What's your view? Is this a sustainable solution?
Professor McKibbin: There are concerns that national debt, which stood at around 40 percent of GDP before the stimulus plans were introduced, could sharply rise to as high as 50 percent if you include the loss in tax revenue. For a country like South Korea which doesn't have as much financial capacity as Western countries do to afford their stimulus plans, and doesn't have the liberty of printing dollar bills, what are the dangers of debt hitting unprecedented levels?
Professor Yang: The Bank of Korea is expected to have its monetary policy meeting next week, where it's expected to cut rates to an unprecedented 0.5%. Will this help boost spending and confidence?
Professor McKibbin: Do you think rate cuts will help at this point?
Profesor Yang: But the South Korean economy was already slowing down and the unemployment rate was on the rise, as well as concerns there could be a deflationary shock due to plummeting consumer prices before the coronavirus outbreak. What fundamentals need to be improved?
What are some ways it can revive growth we saw corporate giants Hyundai Motor and Samsung collaborate on driverless cars. Will moves like these help?
That's all we have time for today but it's been an insightful discussion.
Dr. Yang Jun-sok, Professor of Economics at the Catholic University of Korea.
And Dr. Warwick McKibbin, Professor of Public Policy at Australian National University, thank you for joining the programme.
(Seoul, S. Korea)