Bank of Korea governor Lee Ju-yeol said, “The economic recovery depends on how and when consumption recovers.” This year’s inflation rate was 1.3%, up 0.3 percentage points from the previous forecast (1.0%), but demand recovery was evaluated as slow. The persistence of inflation pressure has been questioned.
The BOK Financial and Monetary Committee held a monetary policy meeting on the 25th and unanimously maintained the standard interest rate at 0.5% per year. Governor Lee Joo-yeol said in a press conference immediately after the meeting that “the monetary policy will maintain the easing stance until the domestic economy is expected to show a stable recovery.”
The BOK maintained its previous forecast at 3.0% and 2.5% for this year and next year, respectively, through the revised economic outlook. Regarding the inflation rate, we adjusted the inflation rate to 1.3% and 1.4% this year and next year, respectively, by 0.3 percentage points higher and 0.1 percentage points lower than before. The BOK revises its economic outlook four times a year in February, May, August, and November, compared to last year’s November.
Maintaining the growth rate of 3.0% this year is a different result from E-Daily’s survey of 11 domestic economic and financial experts, and 7 expected an upward revision. It is lower than the estimate of 3.1% of the International Monetary Fund (IMF).
The BOK maintained its growth rate forecast because private consumption and employment are showing signs of slower than before, although exports and investment are expected to improve further. Product exports are expected to increase by 7.1%, improving from the previous year (5.3%), and facility investment will also increase from 4.3% to 5.3%. Construction investment also increased from 0.5% to 0.8%. Imports also increased from 5.9% to 6.4%, but the growth rate is expected to be lower than that of exports. This is because private consumption is worse than expected. Private consumption is expected to grow at 2.0%, slowing down from the previous (3.1%). Consumption is expected to decrease, mainly in the face-to-face service industry, in response to the spread of Corona 19 and the appearance of mutant viruses. This also affects employment. The number of employed this year is expected to increase by only 80,000. It is a whopping 50,000 people down from the November forecast (130,000 people). It was predicted that if the fourth disaster support fund promoted by the politicians was paid, the growth rate could be slightly increased, centered on consumption, but it is not known how much the growth rate could be increased as the specific scale has not yet come out.
Although the inflation rate forecast has been revised upward, questions have been raised about the persistence of upward pressure. Governor Lee said, “As the situation of the development of Corona 19 is uncertain, it will take some time for demand to recover in earnest, so we have to see if there will be persistence (of inflationary pressure).” The average price of crude oil imported into Korea is expected to be 56 dollars per barrel this year, higher than the previous year (43 dollars), so that although exports will increase more than imports, the current account surplus is expected to decrease to 640 dollars from last year (753 billion dollars).