South Korea’s president warned that “emergency steps” were needed to prevent a growing crisis in the country’s China-reliant economy, as the fallout from the deadly coronavirus outbreak reverberated across the globe.
President Moon Jae-in called for “all possible measures” to support the South Korean economy, a day after analysts said Japan was facing a recession as the deadly virus disrupted regional supply chains and exports.
“We should take all possible measures we can think of” to support the economy, Mr Moon told a cabinet meeting on Tuesday. “The current situation is more serious than we thought . . . we need to take emergency steps in this time of emergency.”
Underlining the impact from the virus, Apple, the world’s most valuable technology company whose iPhones are built in China, admitted revenues would be lower than forecast because disruption from the disease had “constrained” production.
The biggest exporters in South Korea, such as Hyundai Motor, have also been badly hit by the delayed shipments of parts from China. The country buys about a quarter of South Korea’s exports.
The growing economic fallout has prompted leading Asian economies to announce stimulus and monetary measures to counter the slowdown, with China’s central bank this week lowering a benchmark lending rate.
Singapore is expected to unveil a fiscal stimulus to offset the fallout from the virus when it announces its budget on Tuesday. The city-state on Monday slashed its GDP growth forecast to -0.5 to 1.5 per cent, down from 0.5 to 2.5 per cent.
Prakash Sakpal, economist at ING, said that the package was likely to include personal and corporate income tax relief as well as relief measures for the retail and tourism sectors.
Singapore is particularly vulnerable to the virus as a small, open economy heavily reliant on Chinese visitors. It said last week that it expected visitor arrivals to be down by up to 30 per cent this year.
South Korea, Asia’s fourth-largest economy, has already announced a Won420bn ($356m) emergency plan to offer loans to struggling airlines, shipping companies, travel agencies and retailers facing a virus-related liquidity crunch.
Park Chong-hoon, head of research at Standard Chartered in Seoul, said the latest developments would ensure GDP growth was below last year’s 2 per cent. “The Korean economy is losing momentum again just when it was about to slowly recover,” he said. “Sentiment is deteriorating as China’s economic slowdown is negatively affecting exports and tourism revenues.”
Japan’s economy shrank at an annualised rate of more than 6 per cent in the final three months of 2019 following a rise in its consumption tax. This worse than expected performance was before the virus outbreak shut down tourism from China and disrupted supply chains for Japanese companies. A second consecutive quarter of falling output, which many analysts believe is likely, would plunge Japan’s economy into recession.
Economists expected China’s growth rate to cool sharply due to the virus — although the extent of the likely slowdown was under debate.
Goldman Sachs, which tracks various measures to gauge the virus impact, said the amount of coal consumed by the large electricity producers had been a third lower in the first 16 days of February than “normal seasonality would suggest”.
China’s national health commission on Tuesday reported 98 new deaths from the virus, taking the total killed to 1,868. The 1,886 new daily cases took the total to 72,436. Both the number killed and of new cases were lower than the previous day.