Clouds are gathering over Seoul. Even though South Korea, unlike the EU and US, has avoided economic or social lockdowns, woeful economic forecasts are piling up. Photo: Andrew Salmon

Customers can normally anticipate a welcoming smile from Huey Koh, the convivial 60-something owner of Dos Tacos, a small Mexican eatery in a side street in downtown Seoul’s Jongno district.

But amid the novel coronavirus pandemic, the proprietor’s smile is hidden by a mask and the vibe – Koh’s, his restaurant’s and, indeed, the entire district’s – is subdued.

“It’s quite difficult,” he said. “Sales are down almost two-thirds from the beginning of the outbreak. We survive on a third.”

He has only let one staff member go, but has shuffled part-timers’ schedules. Like other Mom ‘n Pop businesses, Koh is getting tax relief, but needs a cash flow. How long can he subsist at his present level of operations?

“I am not quite sure,” he said. “Hopefully, to the end of this year.”

Jongno is a hub of lunchtime dining and afternoon coffee drinking, but after dark, it turns into a neon-lit entertainment zone. It is popular with office workers from the surrounding high-rises housing conglomerates and finance companies, who go there to let off apres-work steam, and also with youth who enjoy its lively aura, and the romantic ambience of the nearby Cheongyecheon Stream.  

But these days, Jongno is more downbeat than anyone can remember.

“There are a lot of temporarily closed stores,” Koh said. “Nobody comes in … and at night especially it is very quiet.”

Restaurateur Huey Koh has seen two-thirds of his business dry up amid social distancing campaigns. Photo: Andrew Salmon

Delayed impact

Although South Korea has kept its domestic economy ticking over without lockdowns, as Koh knows all too well, social-distancing campaigns have carved a bloody swathe through consumption.

And domestic consumption is the least of it. South Korea, given its dependency on trade, is a weathervane for the global economy. And the global economy – with lockdowns bringing both production and consumption to shuddering halts in the EU and North America – is losing steam at an unprecedented rate.

While Koh depends upon local buyers, at the opposite end of the economy, electronics superbrand and national flagship Samsung relies on global markets.

On Friday, Yonhap Infomax, the financial arm of Yonhap news agency, released its assessment of Samsung’s Q1 results ahead of the company, which is expected to release earnings guidance next week.

Analysts canvassed by Yonhap Infomax expected Samsung to increase sales by 5.5% year-on-year, while operating profit will drop by a mere 0.09%. The upbeat outlook is based on a nascent recovery in demand and pricing in the chip market. Solid results from semiconductors are expected to buttress a downturn in mobile phones, electronic devices and displays.

Still, the analysts warned that delayed pandemic impact is going to hit in Q2. They warned that the company started suffering from mid-March, when the crisis jumped, full-fledged, from China and Northeast Asia to Europe and the United States.  

China and Taiwan appear to have mastered the virus challenge, while South Korea and Japan have flattened their curves. Of the four manufacturing powerhouses, only China conducted lockdowns, the other three opting for moderate social-distancing campaigns.

Matters look direr in Europe and the United States. There, death rates are higher in both gross and percentage terms, while lockdowns are crippling economies. Even if the virus peaks in April or May, it looks unlikely that matters will improve significantly before the summer.

That suggests that of the world’s three key economic engines, only one – Northeast Asia – will continue operations, and even then, at a greatly reduced rate.

The big questions then are whether the world will have to write off two or three quarters of growth and whether the eventual recovery will be a v-shaped rebound or a more prolonged, and painful, u-shaped curve.

The trade barometer in South Korea may offer some answers.

Hard times are coming

Last year, the economy grew 2%, a rate seen as somewhere between woeful and sluggish by local market watchers. Those pundits had better hang on to their hats this year as forecaster after forecaster is taking a chainsaw to growth outlooks. And while Samsung may anticipate a not-too-awful Q1 based on lag effect, that is not the case for the broader economy.

Nomura Securities estimates South Korea’s Q1 economic growth rate to be -3.7% and Barclays -1.3%. The Bank of Korea expects Q1 2020 to come in at under the rate of the first quarter of 2019, which was -0.4%

What of the full year? A country that had, prior to the novel coronavirus, been comfortably anticipating growth north of 2% for 2020, now looks set to either slide into the first recession it will have suffered since 1998 or barely keep its chin above water.

On Friday, the Asian Development Bank today warned that the virus could kill off 5% of global GDP, and it slashed its Korea outlook by a hefty 1 percentage point to 1.3%.

The private sector is more bearish.

On March 26, credit ratings agency Moody’s axed Korea’s anticipated growth rate for 2020, from 1.4% to a razor-thin margin of 0.1%. The suddenness of that plunge was shocking. Only three weeks earlier, on March 9, Moody’s had already slashed its forecast from 1.9% to 1.4%.

And Moody’s – which anticipates global growth at -0.5% – lies in median place among the big three global agencies. Fitch lowered its 2020 Korea growth forecast from 2.2% to 0.8%. S&P has wielded a particularly murderous ax, chopping its Korea estimate from 1.1% to -0.6%.

On April 2, a survey of 2,200 Korean manufacturers found that business sentiment had tumbled to the same level it stood at in the wake of the global financial crisis. The Business Sentiment Index stood at 57 for the April-June period, according to the Korea Chamber of Commerce and Industry, an 11-year low and down 18 points from Q4 of 2019. Up to 71% of KCCI respondents said their business had taken a virus and on average, firms said profits were 22% down for the first quarter, year-on-year.

Hank Morris, an advisor to Seoul-based Erudite Risk, said he expected South Korea to narrowly avoid recession. He based his prediction on a domestic factor – it has not shut down its economy – and two global factors – the lack, so far, of a global financial crisis, and the likelihood of an East Asia-led recovery late in the year.

“No virus has lasted forever, and governments are standing behind banks, which have held better assets since the global financial crisis,” he told Asia Times. “So banks are ready to fund businesses.”

Still, with the virus expected to peak in the EU and US in mid to late spring, his prediction was based on the EU and US economies coming fully back on-line, rather than stuttering to a semi-start amid excessive caution or fears of “second waves” of Covid-19.

“Once people come out of hibernation, they can quickly return to their workplaces,” Morris said. “And we have not had a total shut-down here [in Korea]. That is something, and if you have that, you can recover.”

Empty shops in the normally bustling Jongno district in Seoul. Photo: Andrew Salmon

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world's first benchmark cross sector Chinese Bond Indices. Read ATF now.