Impact of Covid-19 on manufacturing sector of South Korea

                                                                           Abstract

The entire world experienced and bore the impact of the COVID-19 pandemic, and none of the economies in the world were left untouched by it. COVID-19 impacted different sectors of the economy. Here we will discuss the impact of COVID-19 on the manufacturing sector of South Korea using macroeconomic indicators like Revenue generated through exports and the contribution of the manufacturing sector to its economy. South Korea is known for its manufacturing sector; it is especially known for the manufacturing of automobiles, semiconductors, electronics, and petrochemicals. Manufacturing sectors contribute around 30% to the GDP of South Korea, which makes it essential for us to understand the impact of COVID-19 on this sector. To analyze and understand the same, we will compare the data of the above-mentioned macroeconomic indicators before and after COVID-19.

 

Keywords: macroeconomic indicators, manufacturing sectors, exports, unemployment, and GDP (Gross Domestic Product).

Introduction

South Korea is known for its advanced technology and manufacturing sector around the world. According to the UN agency, South Korea’s manufacturing sector is the 4th most competitive in the world. The manufacturing sector is considered to be the backbone of the South Korean economy. It follows an export-oriented approach for its manufacturing sector. Some of the most exported products include semiconductors, automobile parts, petroleum products, consumer electronics, steel products, textile apparel, machinery, and industrial equipment. Due to the outbreak of the Coronavirus, this sector was affected. In this analysis, we will try to analyze the impact of COVID on the manufacturing sector using some macroeconomic indicators.

Revenue generated through the export of semiconductors (2017–22)

To understand the impact that COVID had on the export of manufactured goods, we will understand the export pattern of semiconductors prior to and following COVID. Semiconductors are used in a variety of industries; for instance, they are used in consumer electronics like television, smartphones, computers, tablets, etc.; they are also used in automobiles, healthcare, renewable energy, and the defense and aerospace industries. Even though the demand for semiconductors is pretty high, only a few countries produce semiconductors, like China, Japan, Taiwan, and the European Union. And South Korea is one of the leading producers of semiconductors.

The above chart shows that the revenue generated by the export of semiconductors was steady from 2017 to 2018, and it peaked in the year 2018. Here, the revenue reached 126.71 billion dollars, but after the COVID strike, the revenue declined and remained until 2020. The government took the situation seriously and took timely actions to protect the industry and exports. The government gave the status of an essential industry to the semiconductor industry, which made it possible for this industry to continue operation during the lockdown. The government also incentivizes this sector to give it a boost. As a result of these policies, this industry recovered quickly and returned to its previous status within the time period of 2 years after COVID.

Contribution of the manufacturing sector 

The chart below shows the contribution of the manufacturing sector to the GDP of South Korea prior to and after COVID-19.

The graph clearly shows that since 2016, the contribution of the manufacturing sector has been on the rise. In 2017, there was an increase in the sector's contribution of about 3.71% over the previous year, which is a positive rate of change. With a rate of change of about 3.29% in 2018, this growth persisted, indicating a persistent expansion. In 2019, the percentage contribution dropped to around 1.14%, reflecting a slower growth rate. This was the beginning of the effects of the pandemic. With a negative rate of change of almost -1.09% in 2020, the sector had a dip, indicating a reduction in its contribution. This was the time of lockdowns, which hampered production in the manufacturing sector. This led to a reduction in the contribution of this sector to the GDP for the first time in a decade. Then the contribution increased by 6.90% in the year 2021; even though it is a good figure, it should be noted that the base year, which was 2021, was very low, which led to a higher percentage even though the production did not increase drastically. However, this increase or comeback was possible because of a number of factors. Global vaccination campaigns grew, economies recovered, and there was an increase in demand for manufactured goods. Businesses benefited from government assistance in the form of stimulus packages, which inspired the manufacturing sector to pick up production and make growth investments. Supply chain modifications improved resiliency and market response. Gains in productivity and efficiency were increased by embracing automation and technology. As the world economy recovered, export opportunities grew, especially in industries where South Korea had a comparative advantage. Additionally, changes in consumer behavior during the pandemic raised demand for electronics and home appliances, which helped South Korean producers even more. These elements came together to produce a favorable climate that fueled the sector's remarkable turnaround and offered bright prospects going forward.

Conclusion

In conclusion, South Korea's manufacturing industry has long been a major contributor to its economic development and ability to compete internationally. The industry had been making steady growth when COVID-19 broke out, and semiconductors were a big export that brought in a lot of money for the nation. However, the epidemic presented unforeseen difficulties, upsetting production and supply networks and, for the first time in a decade, lowering the industrial sector's GDP contribution. South Korea proved to be remarkably resilient and adaptable in spite of the setback in 2020. The government's timely actions, such as giving the semiconductor industry important status and offering incentives, were crucial to the sector's recovery. These actions allowed the sector to carry on during lockdowns and encourage expansion after things got better. As a result, within two years of COVID-19, semiconductor export income recovered, demonstrating the industry's flexibility and economic significance. The changes in the manufacturing sector's GDP contribution provided clear evidence of the pandemic's overall effects on the industry. In contrast to the decline in 2020, which showed the negative consequences of the pandemic-induced constraints, the positive rates of change in the years prior to COVID-19 exhibited persistent expansion. Despite being impacted by a low base year, the industry nevertheless showed exceptional resilience, significantly increasing its contribution in 2021.