H1NI Flu Virus Hindering Economic Growth

The rapid spread of the H1N1 influenza virus is showing signs of hurting the Korean economy.

Tourism has been the hardest hit because of the rise in reservation cancellations. The service industry including private academic institutes, restaurants, hotels and movie theaters is also suffering as the elderly, children and pregnant women are avoiding places with large crowds.

The Bank of Korea said yesterday that the GDP of the educational service sector declined 0.1 percent in the third quarter year-on-year, the first dip since the first quarter of 1999 (minus 0.3 percent) when Korea was reeling from the Asian financial crisis.

The educational service sector grew 1.7 percent year-on-year in last year’s fourth quarter and continued to grow with a rise of 1.5 percent in this year’s first quarter and one percent in the second. This is the only industry that has shown a strong performance despite the global financial crisis.

The abrupt dip in the sector is mostly due to government regulations aimed at curbing private education expenses, but the outbreak of H1N1 flu is also a significant factor, the central bank said.

“We cannot assess the scope of the negative impact the flu has had on the industry, but it is clear that the flu has dealt a big blow to private institutes, hotels, restaurants and tourism businesses,” a bank official said.

By contrast, the GDP of the health and welfare industry soared 8.8 percent year-on-year in the third quarter, much higher than the overall services sector’s rise of 0.8 percent over the past year.

Health and welfare saw rapid growth because of the rise in people visiting hospitals and purchasing medical goods to fight the H1N1 virus.

With the virus fast spreading and the number of deaths rising, the economy is expected to take a further hit down the road.

jaeyuna@donga.com jkim@donga.com