As the new coronavirus continues to spread, so too do fears of its ramifications in South Korea. The timing of the epidemic — as the country was expected to emerge from an economic slump and during the lead up to an important National Assembly election — stand to make its impact all the more significant.
South Korea’s first confirmed case of the disease that started in Wuhan, China late last year came on January 20 and has grown to a total of 23 patients as of Thursday, though no one has died. These numbers pale in comparison to the over 560 lives lost and over 28,000 infected in China, but the scale of the disease there and rapid spread to China’s neighbors has raised alarm in South Korea and affected people’s daily lives. To help prevent further infections at home, the South Korean government earlier this week began to deny entry to non-Koreans who have traveled to China’s Hubei province – where Wuhan is located – in the past two weeks. Several recent cases in South Korea were due to travel to countries other than China, but Seoul is still cautious about expanding its entry restrictions.
Measures to contain the virus will certainly be worth the effort in the medium- to long-term, though will invariably bring about short-term costs to a South Korean economy that was almost over the hump. After over a year of contracting exports, largely due to depressed global semiconductor prices and the trade war between the United States and China, the recent rising demand for chips and truce between Washington and Beijing led many to believe South Korean exports would be reinvigorated. Yet the initial figures for this year suggest that the coronavirus is delaying the expected recovery. South Korean exports fell by 6.1 percent in January compared to the same period a year earlier – though that drop was also influenced by having 2.5 fewer working days due to calendar changes in the Lunar New Year holiday – despite a small rebound in semiconductor sales. Some South Korean think tanks are also estimating that annual GDP growth could be lowered by as much as 0.2 percentage points due to the disease.
The full economic effect of the virus is expected to vary by industry, with tourism poised to take one of the biggest hits. Major Korean travel agencies have cancelled all trips to China and major airlines have cut or suspended many routes to China. Although the South Korean government has so far stopped short of banning all visitors from China, the number of Chinese tourists going to South Korea is regardless likely to drop. With over 5.5 million visitors through November 2019, China was by far the largest source of tourism in South Korea last year. Based off of 2018 spending habits, tourism from China could have brought in more than $11.5 billion to the South Korean economy in 2019. It’s still unclear what the impact of the virus on Chinese tourism in South Korea has been so far, but there is much potentially at stake in the coming months.
South Korean manufacturers have also been affected, though this may only be temporary. South Korean automakers Hyundai, KIA, and SsangYong Motor have already or plan to temporarily cut or suspend production due to a lack of necessary parts from suppliers in China. To limit the spread of the virus, local governments across China have instructed plants to halt operations until Sunday. Should sweeping efforts to control the epidemic persist, these cuts could continue. A report by the market research group Trend Force found disruption to South Korean semiconductor production in China to be minimal, but others have also pointed out that the real challenge to these firms would be decreased consumer demand.
Indeed, changes in domestic consumption due to the virus will be crucial in understanding its overall economic effect on the South Korean economy. Many of the shops that have been closed serve international customers, such as major duty-free retailers. However, as more South Koreans have become infected, department stores, restaurants, and movie theaters have also been temporarily closed. It is still too early to gauge the extent of the impact this is having on consumer confidence, but it certainly could be a major drag on the economy in the near future if the number of South Korean cases continues to rise.
In a political sense, the coronavirus is a wild card issue that could upend expectations for the April National Assembly elections. President Moon Jae-in’s Democratic Party is widely expected to do very well in the upcoming election, though how his government manages the spread of the virus and its economic fallout will likely loom large on voters’ minds – especially if the job is botched. Moon, of course, knows this all too well. His predecessor’s slow response to the outbreak of the Middle East Respiratory Syndrome (MERS) in 2015 portended her impeachment in 2017.
For his part, Moon has prioritized responsiveness and transparency in trying to curb the spread of the virus and related adverse effects. The administration has stated it is fully committed to minimizing the economic impact of the virus, pledging resources to firms that are likely to be most vulnerable such as small- and medium-sized enterprises and logistics companies. But the government’s response thus far has also faced some criticism. Residents near a quarantine center outside of Seoul for South Korean citizens returning from Wuhan have protested the government’s decision to place the center close to their homes. The Korean Center for Disease Control and Prevention (KCDC) has also come under fire for waiting 15 hours before disclosing the 17th and 18th cases to the public.
The most important issue for voters, however, remains the economy. Should coronavirus fears outweigh the government’s initiatives to boost the domestic economy in the first half of the year, it could undercut the momentum Moon was trying to build heading into mid-April. The Democratic Party still has a sizable advantage over the less popular opposition, but how the administration’s performance with the coronavirus is perceived from a public safety and economic perspective is likely to significantly influence the outcome of the elections.