Issue Focus

This study involves analysis of Coronavirus’ economic impact on construction industry in South Korea and suggests necessary policy responses. While the macro economy is rapidly changing due to the Covid-19 outbreak crisis, the construction industry is also forced to be directly affected by changes in major real economic variables, including a drop in the economic growth rate. In the past, construction investments have plummeted for 2-3 years in the event of an economic crisis. In 1998 and 1999, immediately after Korean financial crisis, construction investment of private buildings fell by 18.2% and 12.7%. In 2008, during the global financial crisis, construction investment fell by 2.7% and was sluggish. As a result of estimating the ripple effect of the construction industry following the occurrence of COVID-19 crisis, it is estimated that construction investment in 2020 will fall additionally 0.7~3.7%p. At the end of last year, Contruction and Economy Reasearch Institute of Korea had expected that the construction investment in 2020 would decrease by 2.5% compared to the previous year. By adding COVID-19 crisis impact, the construction investment is expected to decrease by more than 6% in 2020. The construction industry has a large impact on other industrial output and jobs, which is feared to cause a significant drop in industrial output and the number of employed people due to the COVID-19. As a result of estimating the industrial output due to the decrease in construction investment in 2020 due to the outbreak of the COVID-19, the total reduction effect of 3.8 trillion won to 20.3 trillion won is estimated. Meanwhile, the number of employed people is estimated to decrease by 2.1 million to 1.11 million. Construction investment is an effective policy tool to overcome the influence of the COVID-19 economic crisis because it has the highest multiplier effect of fiscal investment and the highest labor income distribution rate. The employment multiplier for SOC expenditure of 1 trillion won is estimated to be the largest relative to other sectors at 0.0219. The ratio of compensation of employees to national income of the construction industry is 0.89, the highest compared to other industries, which is an effective means of investment to cope with the decrease in household income due to the contraction of economic activities. An extra budget including public investment should be set up to supplement about 10 trillion won in construction investment expected to decrease in 2020, and it is necessary to expand the SOC budget by at least 5 trillion won next year and maintain the expansion stance for the next three years or more. Considering the decrease in construction investment this year and the reduction of private construction investment next year, SOC budget needs to be expanded by at least 5 trillion won. The tasks for expanding construction investment require ① medical care, expansion of disaster response infrastructure, ② implementation of strategic public investment in special disaster areas, ③ implementation of existing infrastructure policy projects as soon as possible, ④ strengthening strategic investment in preparation for the future, and ⑤ discovery and implementation of 'big projects'. In order to revitalize construction investment, ① it is necessary to raise the scope of projects subject to preliminary feasibility study and expand the scope of projects subject to investigation, ② improve the screening system for local financial investment projects, ③ revitalize Public-Private Partnership projects, and ④ promote private participation in urban regeneration projects.