Supply chain chaos, Omicron pose unexpected challenge to 4% growth goal

International arrivals wear face shields, facemasks and protective gloves as they head to a bus after passing through immigration at Incheon International Airport, Nov. 30. Yonhap

By Yi Whan-woo

With the end of the year around the corner, the disrupted global supply chain and newly identified coronavirus variant Omicron are posing last-minute challenges for Korea achieving an annual economic growth rate of 4 percent.

Some analysts projected Wednesday that the 4-percent mark is unlikely, noting overall industrial output fell to its lowest level in 18 month and investment retreated to a 17-month low in the latest data released by Statistics Korea, Tuesday.

Analysts also projected the country's economic recovery may lose steam and its upward momentum may sputter before the first half of 2022. They said the estimated effects of Omicron, which has been found in at least 20 countries ― but not yet in Korea ― is not represented in the Statistics Korea data.

The monthly data dealt with industrial output and retail sales in October, whereas Omicron was first reported to the World Health Organization (WHO) on Nov. 24 by South African authorities and has since been detected in the other countries.

"We have less than a month remaining to give our best shot to spur the economy while negative factors keep arising," said Lee Seung-suk, a research fellow at the Korea Economic Research Institute.

He listed the Delta variant of the coronavirus, the global trickle-down of China's energy crisis and the shortage of diesel exhaust fluid (DEF), that threatened the economy in addition to the supply chain chaos attributed as major reasons for the decline in economic indicators.

Industrial output declined 1.9 percent in October from the previous month, reversing from a 1.1 percent month-on-month gain in September and marking the largest month-on-month fall since April 2020 when it dropped 2 percent.

In particular, manufacturing output pulled back 3.1 percent month-on-month mainly after the global automotive chip shortage affected car production.

Automobile output fell 5.1 percent last month, and semiconductor production declined 1 percent.

Following lowered investments in machinery and transportation equipment, facility investment dipped 5.4 percent month-on-month, marking the sharpest fall since May 2020 when it shrank 7.7 percent.

Retail sales gained 0.2 percent month-on-month in October, a disappointment compared to a 2.4 percent month-on-month increase in September, and especially considering the fact that the government handed out 250,000 won ($211) to 88 percent of the population in its latest relief package.

"All these signs lead to a conclusion that the 4 percent mark is not likely," Lee said.

But Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki brushed aside concerns.

He argued that the declines were due to fewer working days in October than in previous months after the government abruptly designated two non-working holidays to mark National Foundation Day and Hangeul Day.

Joo Won, deputy director of Hyundai Research Institute, voiced a different view, saying, "The economic uncertainty has been witnessed persistently throughout the recovery track, and the October data are just parts of several clues."

He acknowledged there are positive signs of recovery, such as the export growing 24 percent year-on-year in October and extending its gain for 12 consecutive months.

"But even so, the adverse effects on the economy may cancel out the positive impact," Joo said.

He pointed out the number of daily infection cases surpassed the 5,000 mark for the first time, Wednesday.

This adds to concerns over the government's push to return to normalcy since November to restore industrial output, spending and corporate investment.

The COVID-19 exit measures include distribution of coupons for travel, theater-going, lodging and other outdoor activities.

"At this point, we should be more concerned about whether the country can continue to expand next year, rather than whether it can grow by 4.0 percent this year," he said, adding he projects the growth to be at 3.8 percent.

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