Hyundai Economic Research Institute Forecasts 0.3% Economic Growth This Year: "Active Economic Stimulus Needed"

Economic Growth Rate Forecast at -0.9% for First Half of Year
"Mitigating Employment Shock through Liquidity Supply and Fiscal Investment"

[Asia Economy Reporter Yu Je-hoon] Due to the COVID-19 pandemic, it is forecasted that South Korea's economic growth rate will be limited to 0.3% this year. The Hyundai Research Institute announced this in its '2020 Revised Outlook for the Korean Economy' economic bulletin released on the 26th.

The institute first predicted that the domestic economic growth rate for the first half of the year would be around 0.9% due to the COVID-19 pandemic. This is the lowest level in about 10 years since the first half of 2009 (-1.5%) during the global financial crisis.

For the entire year, it is expected to record an economic growth rate of 0.3%, with -0.9% in the first half and 1.4% in the second half. The institute explained, "Economic constraints caused by the spread of COVID-19 will continue until the first half of the year, and if effective quarantine measures and active economic stimulus policies are implemented and show results, the economic growth rate this year will be around 0.3%."

Additionally, the institute forecasted that most major economic indicators will show a downward trend this year. Private consumption is expected to decline by -0.3% annually, facility investment by -4.5%, and export growth rate by -5.9%. The current account surplus is projected to decrease by $7 billion from last year’s $60 billion to $53 billion, and the trade surplus is expected to shrink by $9.5 billion from last year’s $38.9 billion to $29.4 billion.

However, construction investment is expected to increase by 0.5% in the first half and 1.1% in the second half, resulting in an annual growth of 0.8%. This takes into account the government's increased social overhead capital (SOC) budget this year, the expansion of national infrastructure investment due to the 'Korean New Deal' policy, early promotion of urban regeneration projects, and large-scale national projects.

Accordingly, the institute advised that large-scale economic stimulus measures need to be promptly implemented to prevent the negative impact of COVID-19 on the economy from expanding. The institute stated, "It is necessary to prevent liquidity crises from spreading to bankruptcy crises through sufficient liquidity supply to companies. At the same time, to prepare for the global trade recession, monitoring of financial and real markets should be strengthened, and active export stimulus measures should be prepared. Since shocks in the employment market could lead to deterioration in consumption and investment, causing prolonged domestic demand stagnation, it is necessary to mitigate shocks through active fiscal spending and strengthen social safety nets for workers vulnerable to economic shocks, such as temporary and daily workers."

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