Specter of summer monsoon unnerves Korea's economy

Emergency service officials search for a woman who went missing amid heavy rain in Gyeongsan, North Gyeongsang Province, Tuesday. Yonhap

The Korean economy could undergo months of slowdown, due to the summer monsoon season characterized by longer-than-usual periods of rain interspersed with sporadic typhoons, observers said Tuesday.

Most at risk are small businesses in the service industry, extremely vulnerable to domestic consumer sentiment. Eateries will grapple with volatile ingredient prices, while the hospitality sector will see fewer tourists in bad weather.

Also put on hold will be the construction industry, since concrete slab and electrical works during wet and humid conditions can come at the cost of worker and project safety.

A weather-induced supply shock can push up fresh food prices, straining the lives of many in the form of an elevated cost of living.

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A Bank of Korea (BOK) report released on July 2 on the impact of climate change on inflation showed that an increase of 1 degree Celsius from a short-term heat wave can trigger a 0.5 percentage point jump in agricultural product prices. This in turn will contribute to a 0.07 percent increase in headline inflation.

The produce price will climb 2 percent, if the higher temperature continues for a year, with headline inflation inching up 0.7 percent.

Similarly, a Korea Development Institute (KDI) report in May showed a 100 millimeter increase or decrease in precipitation translated into a 0.07 percentage point increase in inflation, as measured by data from January 2003 to last December. Most pronounced were changes in fresh food prices which surged up to 0.93 percentage points.

A Korea Meteorological Administration 2022 report said the boundaries of monsoon season and dry season are increasingly blurred, a climate phenomenon it called the "Korea-style monsoon." Previous periods had only two or three weeks of rain followed by weeks of hot and dry days. However, recent years have seen rain continuing for up to two months, often accompanied by deadly typhoons.

Small Enterprise and Marketing Service data on the June business survey index (BSI) stood at 57.9, down 9.5 points from the previous month. Nearly half, or 45.1 percent, ascribed the pessimism to stagnant consumer confidence, followed by weather and other seasonal factors (18 percent).

Small biz concerned

"I hope this summer is not as bad as I fear," said an owner of an eatery surnamed Kim.

Not as many dine out, he said, due to high inflation over the past few years. The recent rise in ingredient prices is another concern.

"Menu prices are bound to go up if fresh produce prices suddenly spike. Profit margins are not a concern at this point. It's about making ends meet."

According to Korea Agro-Fisheries & Food Trade Corp. data, the price of red lettuce retailed on average at 1,178 won ($0.85) per 100 grams on Friday, up 17.3 percent from a week earlier. It was up 35.1 percent from four weeks earlier.

The prices of spinach surged over 30 percent from the previous week. Carrot prices rose 74.8 percent compared to the year's average.

"I have heard many times that this summer will have heavier rainfall than years earlier," Kim said. "This means the prices will go up and stay up, and there is nothing I can do about it. My business will suffer."

The Rural Development Administration affiliated with the agriculture ministry said prices of vegetables, including cabbage, radish and carrots, will be higher this year from a year ago, given unfavorable weather and farming conditions compounded by reduced cultivation area.

Global climate events can either push up domestic agricultural produce prices directly or take stages of indirect yet clear upward price pressure in the economy, according to the July BOK report.

Climate change can lead to a surge in global commodity prices. This in turn can add cost pressures to import prices, ending up as higher overall domestic price levels.

"The government should take proactive global response measures, a step equally critical as the development of sustainable produce that can weather the country's farming conditions," the report said.