[Economic Outlook] Announcement of Employment Report under Moon Administration, Focus on Bank of Korea Interest Rate Decision

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] This week marks the first Monetary Policy Meeting of the Bank of Korea (BOK) for the year, scheduled for the 17th. The prevailing assessment inside and outside the BOK is that the base interest rate is likely to remain unchanged. There is growing analysis that the economy this year will improve compared to last year, and since the government has declared a "war on real estate speculation," there is also concern that lowering interest rates could lead to funds flowing into the real estate market, which poses a burden for the BOK. Some macroeconomic indicators that gauge the current state of the Korean economy will also be released. In particular, attention is focused on the employment trends for December and the entire year.

The market is leaning toward the BOK maintaining the current interest rate. Thanks to the recovery in the semiconductor sector, the economy is expected to improve compared to last year, so there is no urgent need to cut rates.

The government's policy direction, which has introduced strong regulations on real estate loans, also acts as an obstacle to the BOK lowering interest rates. President Moon Jae-in expressed a strong commitment to stabilizing housing prices in his New Year's address, stating, "We will never lose the war against real estate speculation."

Although real estate measures have been introduced every year under the Moon administration, the annual increase in household debt has shown no signs of slowing down. Household loans from banks increased by KRW 58.9 trillion in 2017, KRW 60.8 trillion in 2018, and KRW 60.7 trillion last year. In this situation, further interest rate cuts risk only triggering more household debt growth. A representative from a commercial bank pointed out, "Last year, the timing of the BOK's interest rate cuts coincided exactly with the overheating of the real estate market in the second half, making it difficult for the BOK to implement additional rate cuts."

Employment trends, which are announced ahead of the BOK's interest rate decision, are also a key focus. The Statistics Korea will release December and annual employment trends on the 15th. Employment trends provide comprehensive indicators of the employment situation, including employed persons by age, industry, occupation, and working hours; employment rates; unemployed persons and unemployment rates by age and education level; population aged 15 and over and economically active population; and non-economically active population including discouraged job seekers.

Previously, in November last year, the number of employed persons increased by 331,000 compared to a year earlier, maintaining an increase of over 300,000 for four consecutive months. The employment rate recorded its highest level in 23 years as of December, and the unemployment rate fell by 0.1 percentage points from a year earlier to 3.1%. The government projected that the annual number of employed persons would increase by an average of 280,000 last year. Accordingly, particular attention is expected to be paid to the annual indicators.

The decline in jobs for those in their 40s is also an important issue. The number of employed persons in their 40s peaked at 6,966,000 in October 2015 and has been on a downward trend since November of that year. The year-on-year decline has continued for 49 months up to November. The government has activated a task force (TF) on jobs for people in their 40s.

The January issue of the "Recent Economic Trends (Green Book)" to be released on the 17th will contain the government's official assessment of the Korean economy. In the December issue last year, the Ministry of Economy and Finance diagnosed that while service sector production and consumption have maintained a moderate upward trend, exports and construction investment have acted as factors restraining growth.

This content was produced with the assistance of AI translation services.