ED Modest growth rebound

COVID-19 still weighs on full recovery

The economy recorded a modest rebound in the third quarter, temporarily ending a COVID-19 triggered slump. It is welcome news many people have aspired to hear amid the spread of the coronavirus. Yet it would be better to have cautious optimism because it is too early to predict a full-blown recovery.

On Tuesday, the Bank of Korea said the nation's gross domestic product (GDP) grew 1.9 percent in the July-September period from the previous quarter. This modest growth represents a turnaround from a 3.2 percent contraction in the second quarter and 1.3 percent decline in the first. It is also the best quarterly performance since the first quarter of 2010.

The rebound was attributed to a robust increase in overseas shipments. According to the BOK, exports jumped 15.6 percent in the third quarter, while facility investment also rose 6.7 percent. The government's fiscal expansion boosted by four supplementary budgets also contributed to the GDP growth.

Against this backdrop, there is growing expectation that the country will meet its economic target for this year: a 1.3 percent contraction. Policymakers and industry experts say that it will not be difficult to achieve this as long as the GDP grows at least 1 percent in the final quarter.

Yet, the real problem is the failure to stimulate domestic demand. Private consumption edged down 0.1 percent in the July-September period from a quarter earlier. This was inevitable, given the second wave of COVID-19 infections. Tightened social distancing rules in summer took their toll on consumption, and this trend shows little signs of improvement, because the coronavirus is unlikely to die down soon.

That is why many economists warn that the economy may slip back into recession, depending on the severity of the resurgent pandemic at home and abroad. A spike in virus infections in the United States and Europe ― Korea's major trading partners ― is cause for concern.

Other factors such as the mounting rivalry between Washington and Beijing, and who will win in the Nov. 3 U.S. presidential election are also expected to dim the country's economic prospects. One positive aspect is the relatively strong economic recovery of China, Korea's largest trading partner.

The country cannot achieve a sustained economic rebound without bringing COVID-19 under control. The Moon Jae-in administration should implement a consistent policy of defeating the pandemic. It is also imperative to maximize the effects of already-announced stimulus packages to fuel domestic consumption.

To that end, it is necessary to revitalize the slumping services industry to speed up economic recovery and create more jobs. Most of all, the Moon government and the ruling party should push for regulatory reform and encourage innovation to keep the momentum for long-term, sustainable growth.