BOK maintains 3% growth this year… Consumption sluggish despite strong exports (2 reports in total)

Product export 1.8%p↑ than previous forecast Private consumption 1.1%p↓

Expected 1.3% inflation rate this year for economic recovery and rising oil prices 0.3%p↑

(Seoul = Yonhap News) Reporter Shin Seong Seo-ho and Han Hye-won = The Bank of Korea predicted that Korea’s real gross domestic product (GDP) this year will grow 3% from last year on the 25th.

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This is the same as the previous forecast announced on November 26 last year, and the growth rate for next year was also maintained at 2.5%.

Initially, among economic experts, there were many observations that the BOK will slightly increase the growth rate by 0.1 percentage points to reflect the recent strong exports.In fact, the BOK’s revised economic outlook report presented a forecast for this year’s product export growth rate of 7.1%. This is 1.8 percentage points higher than the existing export growth rate (5.3%).

In addition, the growth rate of commodity imports was also increased by 0.5%p from 5.9% to 6.4%, but the forecast for the current account surplus increased from $60 billion to $64 billion. The facility investment growth rate (5.3%) also increased by 1.0%p compared to the previous (4.3%).

However, decisively, the private consumption growth rate was 2.0%, down 1.1%p from the previous (3.1%).

In the end, the BOK sees that consumption, which has been greatly contracted due to the third spread of Corona 19 and strengthening social distancing since November of last year, offsets the effect of strong exports and investment, and it is interpreted that it has not changed its outlook for economic growth.

BOK Governor Lee Ju-yeol said at a press conference immediately after the Financial Services Commission that “this year, global trade conditions will be favorable due to vaccine distribution and active fiscal stimulus measures in major countries.” Income conditions are not improving, especially this winter, as the spread of coronavirus in Korea is deeper than expected, so consumption is expected to be more sluggish than what we saw last time (expected in November last year).

The prospect of the BOK’s job recovery also darkened. At the time of the forecast for November last year, the BOK expected an increase in the number of employed by 130,000 this year, but in this forecast, the increase decreased to 80,000. Conversely, the unemployment rate forecast has risen from 3.8% to 4.0%.

“The global economic growth rate forecast this year was raised from 4.8% to 5%, while maintaining the growth rate of Korea at 3.0%,” said Kim Woong-eun, head of the survey. “External conditions are positive, but consumption is sluggish due to social distancing. “In the case of employment, the number of employed in January is reduced by almost 1 million compared to the same month last year, and there are restrictions on income conditions.”

He added, “This year’s 80,000 employees are the result of the addition of 800,000 to 1 million jobs in the public sector promoted by the government.”

However, in the case of the 4th disaster subsidy, the specific size, target of support, and plans for financing have not been confirmed, so this was not reflected in the BOK’s economic outlook.

On the same day, the KFTC decided that inflation pressure in the real economy was not high, and froze the standard interest rate, but the BOK raised the consumer price increase rate of 1.3% this year, 0.3%p higher than the previous forecast (1.0%).

This reflects the economic recovery, the recent rise in international oil prices, raw materials and grain prices, and strong jeon and monthly rent prices.

In its resolution on the direction of monetary policy, the KFTC stated, “The rate of increase in consumer prices remained at the mid-zero level, due to the continued decline in public service prices despite an increase in agricultural and livestock prices, and the core inflation rate (index excluding food and energy) was also 0%. However, the inflation rate for the general public has risen to around 2%,” he said. “This year’s consumer inflation rate is 1% higher than the forecast for November last year (1.0%) due to rising international oil prices and gradual economic improvement. In the early mid-to-mid, core inflation rate is expected to be around 1%.”

Instead, the level of consumer inflation expected by the BOK for next year has decreased from 1.5% to 1.4%. Investigation Director Kim Woong explained, “This is the’base effect” of the increase in inflation this year.

In this forecast, the average oil price introduced this year is assumed to be 56 dollars per barrel based on the forecast of international oil price specialists.

GDP, product exports, and private consumption growth rates for next year are expected to be 2.5%, 2.3%, and 2.8%, respectively.

Compared to the previous forecast, the growth rate and exports remained unchanged, but private consumption rose 0.3%p. It means that it is believed that the slowed consumption demand will gradually recover from next year.

The economic outlook made by the BOK on this day is based on the’basic’ assumption that the spread of Corona 19 will gradually subside after the middle of this year.

However, in the’pessimistic’ scenario that is delayed to the beginning of next year at the time of the global Corona 19 calming down, the growth rates this year and next year are expected to drop to 2.4% and 1.9%, respectively.

On the contrary, in the’optimistic’ scenario where the spread of Corona 19 is quickly resolved after the beginning of the year, the BOK’s analysis is that this year’s growth rate will increase to 3.8% and next year’s growth rate to 3.1%.

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2021/02/25 14:48 sent