3% growth expected this year thanks to semiconductors… Deterioration in employment and consumption is a reef

◆ Korea’s economic outlook ◆

While the Bank of Korea maintained its real gross domestic product (GDP) growth forecast this year at 3% as before, it raised its inflation forecast to 1.3%. Normally, when raising the price forecast while maintaining the growth rate forecast, it is interpreted as `reflation (a situation where negative inflation has escaped but not soaring inflation)`, which is said to be a process of economic recovery. However, BOK Governor Lee Ju-yeol said, “There is still uncertainty in the real economy,” and froze the base rate at the current level of 0.5%. With the base effect of negative growth last year and the boom of some industries such as semiconductors this year, it will defend the growth rate, but it is predicted that the economic recovery experienced by the consumption downturn will still be slow.

Experts warned that as the service industry’s sluggishness continues to last longer than expected, a typical’bad inflation’, in which consumption does not increase and only the prices of oil and groceries, increase, along with’employment-free growth’.

On the 25th, the Bank of Korea predicted growth rates this year and next year at 3% and 2.5%, respectively. This is the same forecast as last November’s economic outlook. Governor Lee said at a press conference that day, “The domestic real economy showed a rapid recovery in IT sectors such as semiconductors, while facility investment was also strong. On the other hand, private consumption was sluggish due to prolonged social distancing.” Explained the background.

On February 1st to 20th this year, semiconductor exports increased 27.5% year-on-year, and passenger cars and wireless communication devices also increased by 45.9% and 33.6%, respectively, showing a sharp increase. On the other hand, private consumption seems to be unable to regain vitality even during the Lunar New Year holidays due to the continued impact of 2.5 steps of social distancing until the beginning of this year. This trend is expected to continue throughout the year. In the economic outlook announced today, the BOK predicts that this year’s product exports and facility investment will increase by 7.1% and 5.3%, respectively. Investigation Bureau Chief Kim Ungeun explained, “The current account will record a surplus due to the recovery of international demand for semiconductors, and facility investment will gradually improve in the non-IT sector as well as the IT sector growth.” Thanks to the boom in exports, the current account is expected to record a surplus of $62 billion this year. The indicators, such as exports and investment, which are directly connected to domestic production, indicate a very good trend.

The problem is consumption, which is directly connected to the private sector and households. Private consumption is expected to grow only 0.2% in the first half of this year and 2% annually.

This means that even the sluggishness seen last year (-5%) cannot be recovered. Consumption fell sharply from last November’s forecast (3.1%). Jobs and household income continued to struggle while consumption fell into a slump, which in turn led to a decline in consumption. There are concerns that such a vicious cycle may be repeated.

The BOK predicted that in the first half of this year, the number of employed will decrease by 90,000 compared to the same period last year. On an annual basis, even considering the recovery trend in the second half of the year, the number is expected to increase by only 80,000. This is a slow recovery compared to the number of employed people (-220,000), which decreased last year.

Wriggling prices are the intersection of hope and concern. The consumer inflation rate was only 0.5% last year, but the BOK predicted that it will jump to 1.3% this year. This is a 0.3 percentage point higher than the forecast in November last year. Hwan-Seok Lee, Vice President of the Bank of Korea, said, “If consumption improves due to the recent increase in food prices and international raw material prices and the effect of continuous vaccination, prices may rise further.” The BOK predicted the average crude oil import price this year at 56 dollars per barrel, which is about 30% higher than last year’s average unit price (43 dollars). The rise in international oil prices usually acts as an inflationary pressure.

Professor Kim So-young of the Department of Economics at Seoul National University said, “Amidst the sluggish employment, the fact that prices only rise and rise can act as a burden on the future monetary policy management.” You also have to be on the lookout.”

Uncertainty about the future economic recovery was also reflected in the interest rate decision on the day. On this day, the BOK decided to freeze the base rate at the current level (0.5%) unanimously by the MOCIE. Governor Lee said, “As the future economic uncertainty such as vaccination and the outbreak of mutant virus is very high, we will maintain the mitigation stance until the domestic economy shows a stable recovery.”

[송민근 기자]
[ⓒ 매일경제 & mk.co.kr, 무단전재 및 재배포 금지]