Enter 2021-01-26 22:06 | Revision 2021-01-26 22:06
▲ Economic growth.ⓒ Yonhap News
The International Monetary Fund (IMF) projected Korea’s economic growth rate to be 3.1% this year. It raised 0.2 percentage points (P) from the previous forecast (2.9%). This is somewhat lower than the 3.2% the government announced in this year’s economic policy direction.
In this year’s New Year’s speech, President Moon Jae-in was confident in recovering the so-called’V’ shape, which rapidly rebounded, saying that the Korean economy will recover to levels before Corona 19 (Wuhan pneumonia) in the first half. However, with the current spread of Corona 19, the forecasts of international organizations are mixed, so the prospect of recovery is not bright. Economists are of the opinion that the’Swoosh type’ will show a gentle recovery trend like the Nike logo. The IMF also predicted that growth momentum would slow down, lowering the forecast for Korea’s growth rate next year by 0.2%. However, the combined growth rate last year and this year was the highest among the 11 developed countries that released data.
On the 26th, the IMF announced the revised world economic outlook. The IMF publishes forecasts for each country’s economic growth rate twice each year in April and October, and adjusts the forecasts for major countries in the January and July revised reports.
The IMF predicts that the global economy will grow 5.5% this year. We revised up 0.3%p from the forecast for October last year (5.0%). Growth will weaken earlier this year due to the spread of Corona 19 and the global blockade, but the economic recovery momentum is expected to strengthen in the second quarter as the spread of vaccines and treatments expands.
The basic scenario assumed by the IMF is that the vaccine will be widely distributed in developed and some emerging countries this summer and most other countries by the second half of next year. There was also a condition that major central banks would maintain their current low interest rates until the end of next year.
Developed countries are expected to grow by 4.3%. It is expected that it will improve by 0.4%P from the previous forecast. It was expected that the vaccine would be widely distributed around the summer with strong policy support. France 5.5%, US 5.1%, UK 4.5%, Japan 3.1%, Italy 3.0%.
Emerging and developing countries are expected to grow by 6.3%. It was revised up 0.3%p from the forecast in October last year. Although the pattern of economic recovery varies by country, it is analyzed that China (8.1%) and India (11.5%) will lead the growth rate.
▲ The level of real GDP in major countries.ⓒ Ministry of Information
It is analyzed that Korea will grow 3.1% this year. It rose 0.2 percentage points from October last year (2.9%). In particular, we adjusted the growth rate last year from negative (-) 1.9% to -1.1%. This is the highest growth rate among 11 major developed countries for which data are disclosed. The Ministry of Strategy and Finance said, “The combined growth rate of last year and this year plus the growth rate is also the highest level among developed countries,” and added meaning that “Korea is expected to have the highest level of recovery of the real economy to the level before Corona 19.” The combined growth rate for 2020-2021 is 2.0% in Korea, 1.5% in the US, -2.1% in Germany, and -2.2% in Japan.
However, the forecast for next year shows that Korea’s growth momentum is weakening. The IMF expects the world economy to grow by 4.2% next year. It is the same as the forecast for October last year. Developed countries predicted growth of 3.1%. It rose 0.2 percentage points from the previous forecast (2.9%). On the other hand, Korea is expected to grow 2.9%. It fell 0.2 percentage points from last October (3.1%). In the basic scenario, the IMF saw that the deficit would decrease and fiscal balance improved in most countries except for some countries such as the United States and Japan this year, but the growth momentum was low.
▲ Global economy gloomy with Corona 19. ⓒ Yonhap News
This IMF outlook is more positive than what was originally expected. The Organization for Economic Cooperation and Development (OECD) predicted that the world economy will grow 4.2% this year and 3.7% next year in the’OECD 2020-2022 World Economic Outlook’ announced in December last year. The forecast for this year’s growth rate fell from 5.0% to a relatively large (0.8%P). Although the global economy will continue to recover through the development of vaccines and treatments, it is determined that there is still high uncertainty. Korea is forecast to grow 2.8% this year. It was 0.3 percentage points lower than the forecast for September last year (3.1%).
The World Bank (WB) also predicted that the pace of global economic recovery this year will slow. In its Global Economic Outlook report released earlier this month, WB analyzed that the global economy will grow 3.8% this year. It was lowered by 0.4 percentage points (P) from the forecast (4.2%) announced in June of last year. However, this is expected on the premise that the world responds effectively to the Corona 19 pandemic. The WB predicted that the growth rate could drop to 1.6% in the worst-case scenario, such as an increase in new corona19 cases and a vaccine supply failure. In the WB’s January report, the forecast for Korea was omitted. However, it was a general view that it is not easy to be optimistic about the growth rate forecast due to the nature of the Korean economy, which is highly dependent on foreign countries.
The IMF diagnosed that downside risks such as re-proliferation of Corona 19, strengthening of containment measures in countries around the world, and hasty suspension of policy support, and upside risks such as vaccine and treatment development and distribution, and additional financial expansion are mixed. However, as in the basic scenario, the widespread vaccine distribution seems to have determined that the growth momentum will further strengthen.
▲ Headquarters of the International Monetary Fund (IMF).ⓒ Yonhap News
Some point out that the IMF failed to predict the growth rate last year. In the case of Korea, many domestic and foreign institutions, including OECD -1.1%, Asian Development Bank (ADB) -0.9%, and Bank of Korea -1.1%, predicted a growth rate in the early -1.0% range, but the IMF fell sharply to -1.9%. .
An economist explained that it is difficult to affirm that the analysis has failed as the analysis prediction model and method may differ for each institution, and the statistical data of the subject country may change depending on the timing of the analysis. Seong Tae-yoon, a professor at Yonsei University’s Department of Economics, said, “The forecasts of international organizations are not absolute, so the forecasts are to be revised and supplemented later.” I tend to focus more on the material,” he added. When writing the report in October last year, the IMF viewed the corona 19 incident negatively, but afterwards, major developed countries such as the United States and the United Kingdom hurried to approve and immunize vaccines, and the United States and Japan introduced additional economic stimulus measures. It means that it was over.
Experts say that this year and next year, the Korean economy will rebound due to the base effect of last year’s negative growth, but it will show a gentle recovery trend of the’Nike type’ rather than the’V shape’. Although exports are leading the growth by preserving the coronavirus outbreak, it is analyzed that frozen domestic demand will act as a negative factor. Last year’s real gross domestic product (GDP) growth rate announced by the Bank of Korea on the 26th was -1%. Quarterly, it is -1.3% in the first quarter, -3.2% in the second quarter, 2.1% in the third quarter, and 1.1% in the fourth quarter. The contribution to the growth rate was 1.3%P for exports and -0.8%P for private consumption. This means that although exports boosted the growth rate by 1.3 percentage points, private consumption has slumped 0.8 percentage points. Although exports have contributed to maintaining positive growth for two consecutive quarters after the third quarter, it is said that the sluggish domestic demand has caught up.
Prof. Seong said, “Export will improve indicators centering on semiconductors, but domestic demand will be unstable, so the gap between export and domestic demand will be large.” “The domestic economy will remain unstable despite economic recovery as the shock remains.” Park Yang-soo, head of the Economic Statistics Bureau, also explained last year’s GDP growth rate on the same day, saying, “We expect most of the economic growth this year to be around 3%, but considering the negative growth last year, we cannot say that the recovery rate is fast.” “The prospect of economic recovery must be approached carefully.”
