[Economic Outlook] Economic Impact Inevitable Due to COVID-19 Resurgence... Growth Rate Downgrade and Base Interest Rate Freeze Expected

View of corporate buildings in Seoul (Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] This week, the Bank of Korea will announce its monetary policy direction along with its economic outlook. Attention is focused on the Bank of Korea's base interest rate decision and the revised economic growth forecast. There is also interest in whether the government will introduce additional measures to stabilize the real estate market.

The Bank of Korea will hold a regular meeting of the Monetary Policy Committee on the 27th to decide the direction of monetary policy.

As the novel coronavirus disease (COVID-19) is rapidly spreading again domestically, causing inevitable economic damage, there is a high possibility that the base interest rate will be kept at the historically low level of 0.50% per annum.

Previously, in March, as COVID-19 spread worldwide and markets fluctuated, the Bank of Korea lowered the base interest rate from 1.25% to 0.75%, and further cut it to 0.50% in May. Since then, the Monetary Policy Committee held in July kept the base interest rate unchanged.

On the same day, the Bank of Korea will also revise and release South Korea's growth forecast for this year. The Bank of Korea's Research Department plans to monitor the domestic spread of COVID-19 until the end of this week and finalize the growth forecast revision reflecting these results. Since the situation is rapidly changing daily, they aim to incorporate the latest information until the last moment to improve the accuracy of the growth forecast.

Given the current situation, the Bank of Korea's growth forecast is inevitably expected to be revised downward. In the economic outlook released in May, the Bank of Korea projected growth assuming that COVID-19 would subside in the second half of the year, but recently daily confirmed COVID-19 cases have exceeded 300.

In this economic outlook, the Bank of Korea is expected to present three scenarios regarding the extent of COVID-19 spread, similar to May. The baseline scenario is likely to suggest a growth rate in the negative 1% range.

In the May forecast, the worst-case scenario projected a growth rate of -1.8%, and the baseline scenario was -0.2%. However, since the domestic economy is highly dependent on exports and the current export downturn is showing signs of improvement, the forecast may be presented at around -0.8%, similar to the Organization for Economic Cooperation and Development (OECD) forecast. The average growth forecast for South Korea in 2020 by nine foreign investment banks (IBs) compiled by the International Finance Center as of the end of July is also -0.8%.

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki will chair the 4th Real Estate Market Inspection Ministerial Meeting on the 26th. Since follow-up measures on the three lease laws, such as lowering the conversion rate for jeonse and monthly rent (from 4% to 2.5%), were announced at the 3rd meeting, related supplementary measures may be introduced this week.

In response to the implementation of the three lease laws, the government plans to add six more dispute mediation committees within this year, increasing from the current six, to smoothly resolve various disputes that may arise during the transitional period. To protect tenants from false contract renewal refusals, tenants will be granted the right to access information such as housing move-in registration and fixed date status for a certain period even after eviction.

Inspections on market disruption activities such as price manipulation or false listings in the real estate market are also underway, and the results are expected to be disclosed.

On the same day, Statistics Korea will release the finalized 2019 birth statistics and the June 2020 population trends. According to the '2019 Birth and Death Statistics (provisional)' announced in February, South Korea's total fertility rate last year was only 0.92. Following 0.98 in 2018, this marks two consecutive years below 1.0, the lowest among OECD member countries. According to the May 2020 population trends, the number of births has been declining for 54 consecutive months since December 2015, so the total fertility rate is expected to remain below 1.0 this year as well.

Additionally, on the 28th, the '2019 Population and Housing Census Registration Census Method Aggregated Results,' which includes last year's population data, will be announced.

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