Economy's rebound set to continue in Q4

People wearing face masks to help protect against the spread of the coronavirus wait for their trains ahead of the upcoming Chuseok holiday, sometimes called Korean Thanksgiving Day, at the Seoul Station, Sept. 29. AP-Yonhap

By Kim Yoo-chul

As the COVID-19 pandemic is apparently slowing down here, with the number of people testing positive falling below 100 for the fourth straight day as of Sunday during the Chuseok holiday, some expect the economy to continue its recent signs of recovery through the fourth quarter.

Strengthened coronavirus containment measures weighed heavily on economic activity in the second quarter with steep falls in real gross domestic product (GDP) in most G20 countries. For the G20 as a whole, GDP dropped by a record 6.9 percent, larger than the 1.6 percent fall recorded in the first quarter of 2009 at the height of the financial crisis. GDP contraction was less pronounced in Korea with 3.2 percent recorded for the three months ended June 30, according to data from the OECD.

Before the Chuseok holiday, Finance Minister Hong Nam-ki said that the economy was likely to rebound from the third quarter and didn't rule out the possibility of a China-style rebound depending on the number of new COVID-19 cases. For the second quarter, China was the only G20 country recording growth (11.5 percent following a contraction) reflecting the earlier onset of the pandemic and subsequent recovery there.

The Korean government asked the public to stay home during Chuseok, which ended October 4, in order to avoid exacerbating the COVID-19 situation here. Many Koreans followed the suggestion as President Moon Jae-in and government officials stressed the country wouldn't be able to keep the virus at bay if massive numbers of people traveled to visit family as usual. Moon said staying at home would give the government the upper hand to further control the spread of the virus and protect the economy.

It's still questionable whether Korea will successfully follow China's recovery over the remainder of the year as earnings for many rated companies in cyclical sectors such as semiconductors, autos, refining, chemicals and steel will weaken quite significantly this year because of slower economic activity, reduced demand and market shocks stemming from the spread of the coronavirus.

But some analysts are saying disruptions from the pandemic will be shorter than expected and are suggesting lower possibilities of the global economy seeing a deeper and more prolonged downturn.

“Corporate earnings will be on track from the pandemic gloom and we are pretty positive that the overall Korean economy is positioned to pursue a second-half recovery scenario,” said Hyundai Motor Securities analyst Lee Chang-hwan.

The third-quarter operating income of 147 listed firms on the KOSPI was estimated at 35.4 trillion won on a consolidated basis, up more than 19 percent from a year ago, according to financial research firm FnGuide, Sunday. Their combined net profit is expected to rise 54.7 percent, quarter-on-quarter.

Moody's Investors Service expects the Korean economy to contract by 0.5 percent this year because the government's support measures ― such as its 100 trillion won financial stabilization package, a 40 trillion won key industry stabilization fund and supplementary budgets ― will mitigate the economic effects of the pandemic.

While the improving Chinese economy is expected to have some positive impact on the local economy, the situation of Korea's key backbone industries ― autos, refining, chemicals, steel, shipbuilding and utilities ― aren't looking so good because of sluggish end-market demand and the possible further spread of the virus in the United States and Europe, according to analysts. Major semiconductor companies such as Samsung and SK are set to post some visible profits that will last throughout the year. However, Samsung and SK officials say next year will be much better than this year.

Sung Tae-yoon at Yonsei University in Seoul said the private sector, represented by the leisure, hotel and airline industries, will be hardest hit as has been seen so far this year with consumers still wary of possible new virus outbreaks.

“If the social distancing level rises to Level 3, then that will be a major blow to already-stricken small businesses and will heavily dent private spending,” he said, adding the country's exports are unlikely to see a steep recovery. Exports account for about 50 percent of the Korean economy. They extended their slump to a sixth month in August because of the virus. But the retreat was in single digits on a recovery of shipments of memory chips.