Breakingviews-Seoul's virus tests yield
false economic positive
[Kim Min-bae, CEO of iONEBIO Inc. poses for photographs with samples of iLAMP Novel-Coronavirus Detection Kit after an interview with Reuters at a company office in Seongnam, South Korea, March 26, 2020. Picture taken March 26, 2020. REUTERS/Kim Hong-Ji]
HONG KONG (Reuters Breakingviews) - South Korea may have spared many of its citizens from the coronavirus, but saving the $1.6 trillion economy could be even harder. Early widespread testing is being credited for slowing the pace of infections. It’s not obvious, however, whether any benefits will extend beyond the extraordinary feat of saving lives.
The containment efforts are being held up as a global model. As early as January, weeks before a major outbreak erupted in the southeastern city of Daegu, authorities started mobilising to find out who had contracted the disease. This included fast-tracking regulatory approvals, setting up drive-through screening centres and aggressively tracing and isolating patients and their contacts. By March, South Korea’s testing capacity hit 20,000 a day, as new cases gradually ebbed. Korean companies are now shipping kits to the United States and elsewhere.
President Moon Jae-in may need to wait a while for additional advantages to filter through. Millions of homebound consumers have been stocking up. Online shopping surged by more than a third year on year in February, but overall domestic consumption and investment has been sluggish as contagion fears linger.
In financial markets, the benchmark KOSPI index has underperformed the Nasdaq Composite since the start of the year. The won, meanwhile, plunged 5% against the U.S. dollar in the first quarter.
The prognosis looks bleak. Abroad, the pandemic has worsened considerably, with nearly 700,000 cases worldwide as of Tuesday. The IMF now reckons the world will contract economically this year. Even if South Korea manages to prevent another outbreak – a big if – falling global demand will batter exports, which account for 40% of economic output. Last week, S&P slashed its forecast for the country to -0.6%, from 1.6% in February.
Even as Moon prepares a fresh fiscal package, companies are bracing for a downturn. Business sentiment suffered its worth monthly fall in 17 years, according to the central bank’s survey for April. Despite its pandemic head start, South Korea will have to wait for the rest of the world to heal.