The Bank of Korea Says "Growth Rate Lower Than -0.2%"... Further Decline in Growth Rate Inevitable

Deterioration in Three Major Indicators: Investment, Consumption, and Employment... Concerns Over COVID-19 Resurgence

[Asia Economy Reporter Jang Sehee] The Bank of Korea expects this year's gross domestic product (GDP) growth rate to fall further than the -0.2% forecast released in May, raising the prospect of a '-1% growth scenario.'

The Bank of Korea's Monetary Policy Board held a meeting on the 16th, chaired by Governor Lee Ju-yeol, and decided to keep the base interest rate at 0.50% per annum. At the Monetary Policy Board meeting on May 28, the Bank of Korea lowered the base rate from 0.75% to a record low of 0.5%.

Governor Lee stated, "Private consumption rebounded thanks to the easing of restrictions on economic activities and government support measures, but exports continued to decline and construction investment adjusted," adding, "Facility investment recovery was also constrained, resulting in a continued sluggish trend." He also reported that employment conditions remained weak, with a significant decrease in the number of employed persons.

He further said, "Going forward, facility investment and construction investment are expected to show a gradual improvement trend, but the recovery of consumption and exports is anticipated to be somewhat slower than initially forecasted," and "The growth rate for this year is expected to fall below the May forecast (-0.2%)." This analysis reflects concerns that exports, investment, and employment indicators have all bottomed out due to COVID-19, along with fears of a large-scale resurgence of the virus.

The global resurgence of COVID-19 is also expected to be a factor pulling down the growth rate. The May forecast assumed that COVID-19 would peak in the second quarter and then subside. However, in July, the United States recorded a historic high with over 70,000 new COVID-19 cases daily.

Earlier, the Bank of Korea forecasted a GDP growth rate of -0.2% for this year in its May economic outlook. However, it also presented a scenario where the growth rate could fall to -1.8% if lockdown measures due to COVID-19 were prolonged.

Governor Lee said, "When we made the forecast in May, we said that if the worst-case scenario unfolded, the growth rate would be -1.8%. Ultimately, it is no exaggeration to say that the direction of not only our country's economy but also the global economy depends on the progression of COVID-19."

The government also judges that downward pressure on the economy continues. Earlier, Kim Yong-beom, First Vice Minister of Strategy and Finance, said, "The continued expansion of the decline in manufacturing employment and the slowdown in the increase of regular employment remind us that the downward pressure on the economy we are facing is by no means light." Meanwhile, the government plans to accelerate job creation through the Korean New Deal. Vice Minister Kim added, "We must block the transmission of supply shocks caused by the pandemic into demand shocks such as decreases in consumption and investment."

Lee Mi-seon of Hana Bank Financial Investment Research Institute said, "The spread is accelerating in some states in the United States," and "The signs of COVID-19 spread worldwide, including the U.S., and the resulting economic impact will be variables."

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