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South Korea braces for economic pain as virus cases soar

  • Sam Kim, Sohee Kim and Kanga Kong

    Bloomberg

South Korea   /   Mon, February 24, 2020   /   11:45 am
South Korea braces for economic pain as virus cases soar Seoul Metro employees spray disinfectant as part of efforts to prevent the spread of a new virus which originated in the Chinese city of Wuhan, at a subway station in Seoul on January 28, 2020. ( AFP/YONHAP)

South Korea warned its fragile economic recovery is under threat from the coronavirus that has spread dramatically across the country over the past week, and pledged action to minimize the fallout.

The epidemic poses a “large concern that it will limit the trend of economic recovery started late last year,” First Vice Minister Kim Yong-beom said Monday, according to the Finance Ministry. He cited a drop in domestic consumption and exports to China, among other impacts.

Samsung Electronics Co. and LG Electronics Inc. are among those taking precautions amid the rising number of cases, including the infection of a Samsung employee at a local production facility. The country’s largest technology company shut down operations at a plant in Gumi City over the weekend after the employee tested positive for the virus, and said it planned to restart operations at Monday afternoon local time.

Shares of Samsung Electronics slid along with the benchmark KOSPI stock index and the won plunged as investors turned risk-averse.

The number of infections in South Korea soared from just over 30 to more than 760 in the past week, with the virus claiming the lives of at least seven people so far. The spike has led President Moon Jae-in to raise the country’s infectious-disease alert to the highest level for the first time since 2009, allowing the government to restrict public activities.

The Bank of Korea has convened an emergency meeting for this afternoon to discuss the virus impact, with an increasing number of economists convinced the bank will cut its benchmark interest rate at its regularly scheduled meeting Thursday. The government is reviewing all possible measures, including an extra budget, local media cited Vice Minister Kim as saying.

Quick impact

South Korea’s economy tends to be impacted quickly by global events due to its reliance on trade, especially with China. Korea’s imports from the world’s second-largest economy plunged 19 percent in the first 20 days of February, illustrating how the virus is disrupting the region’s supply chain.

The economy is expected to suffer further as fear spreads among the population, limiting economic activity. The government has urged citizens to avoid outdoor activities and mass religious services, and delayed the start of the school year by a week.

Samsung worries

The Samsung case is troubling because Gumi has a collection of facilities operated by Samsung, LG Electronics, LG Display, Toray Group and other companies. Samsung has two production lines in Gumi, about 200 kilometers southeast of Seoul, for some of its smartphones.

LG Electronics, which has TV plants in the Gumi industrial complex, told workers who commute from Daegu to work from home. LG Display has instructed workers who have visited the Daegu area to not come into the office for two weeks, while headquarters staff are restricted from visiting the region without approval from management.

Samsung has shifted more than half of its smartphone production to Vietnam but still produces some of its premium models at the Gumi complex. The stoppage at the plant may affect production of Samsung’s high-end models including the foldable Galaxy Z Flip and the Galaxy Fold.