Omicron wave puts damper on economic recovery

A district filled with restaurants in Seoul is virtually empty in this photo released on Wednesday. Yonhap

Industrial production, retail sales dip simultaneously in January

By Yi Whan-woo

The fast spread of the Omicron variant has chilled the country's industrial production and private consumption, putting a damper on a long-awaited economic recovery, according to analysts, Wednesday.

They said the Ukraine crisis can further worsen retail sales as well as industrial output that jointly fell for the first time in nearly two years in January, as the crisis is deepening a global energy crunch, impacting Korea's economic recovery.

According to Statistics Korea, Wednesday, the country's industrial output slid 0.3 percent in January from the previous month, making the steepest month-on-month decline since July 2021.

Retail sales, a gauge of private spending, dropped 1.9 percent month-on-month in January, displaying the sharpest decline since July 2020.

It was the first time the two economic indicators retreated together since March 2020, raising questions about their implications on the country's path to normalcy.

“I'd say it was the Omicron variant that affected retail sales in January, and although it is less severe than the previous COVID-19 variants, it still can intimidate consumers from going outside and spending in the coming months,” said Joo Won, a deputy director at the Hyundai Research Institute.

Joo said the Ukraine conflict could have a ripple effect on manufacturing costs and prompt a slowdown in Korea's export growth.

Kang Du-yong, a senior research fellow at the Korea Economic Research Institute (KERI), viewed that surging energy prices due to the Ukraine crisis could make the Korean economy lose steam and correspondingly hurt retail sales as well as industrial output.

Experts voiced varying opinions on the extent of the adverse impacts of the Omicron variant and the Ukraine crisis on Korea's economy.

In a press briefing, Eo Woon-sun, a senior Statistics Korea official, analyzed that the negative effect of the Omicron variant on retail sales and service output was “not strong”

“It seems the linkage between quarantine measures and production has weakened,” Eo said.

He added that concerns are growing over the Ukraine conflict heightening external risks, such as price hikes of intermediate goods and energy resources.

On his Facebook, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki said, “The country has extended its economic momentum despite the Omicron variant and other high economic risks.”

He argued, despite a month-on-month decline of 0.3 percent, that January's industrial output was higher than that of the average of the final three months of 2021.

However, he called for special attention to be paid to heightened economic uncertainties at home and abroad, including the economic fallout of Western powers' sanctions against Russia and rising inflationary pressure.