[Q&A] BOK "-1.3% Growth Rate Assumes Over 100 Confirmed Cases for 50 Days"

Bank of Korea August Economic Outlook

"Still a V-shaped rebound in growth rate compared to the previous quarter"
"Recent narrowing of real estate price increases... Strong government will makes it difficult for housing prices to remain high"

Lee Hwan-seok, Deputy Governor of the Bank of Korea [Photo by Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] The Bank of Korea announced on the 27th that its growth rate forecast of -1.3% for this year was estimated based on the assumption that the recent resurgence of COVID-19 in South Korea would subside around October.

They also explained that if the COVID-19 resurgence that began this month had not occurred, the growth rate forecast would not have been lowered to the -1% range. The Bank of Korea presented a forecast of -1.3% on this day, which is more than 1 percentage point lower than the forecast (-0.2%) made in May. To achieve the forecast of -1.3% released by the Bank of Korea, the GDP growth rate for the third and fourth quarters must each record mid-1% growth compared to the previous quarter.

However, they also said that expectations for a 'V-shaped rebound' have not disappeared. Lee Hwanseok, Deputy Governor of the Bank of Korea, said, "If we look at the quarter-on-quarter growth rate trend including the forecast, South Korea still shows a rebound close to a V shape," adding, "If we consider the GDP level, it is closer to the so-called 'Nike swoosh' shape, but from a quarter-on-quarter perspective, it is still appropriate to say that the V shape is maintained."

The following is a Q&A with Deputy Governor Lee and Director Kim Woong of the Research Department regarding the Bank of Korea's economic outlook.

- Could you please explain in detail how you view the domestic COVID-19 situation in the basic scenario?

▲ The estimate assumes that the domestic resurgence of COVID-19 will last about 40 to 50 days, similar to the initial spread period in February to March, with an average of over 100 confirmed cases per day. Since the resurgence began in mid-August, it is assumed that COVID-19 will subside from October, and under this assumption, the growth rate is estimated to be -1.3%. Given the current situation, the basic scenario is considered the most likely to be achieved.

- What growth rates must be recorded in the third and fourth quarters to achieve the Bank of Korea's forecast of -1.3%?

▲ On average for the third and fourth quarters, the quarter-on-quarter growth rate must be in the mid-1% range. Compared to the same period last year, a growth rate in the late -1% range is required in each quarter to meet the forecast. If the COVID-19 resurgence had not occurred, it is unlikely that the forecast would have been lowered to the -1% range this time.

- Did the forecast reflect the possibility of raising social distancing to level 3?

▲ The forecast assumes the duration of the COVID-19 resurgence but does not specifically assume an additional increase to level 3.

- Is a V-shaped rebound now practically difficult?

▲ There has been much discussion about whether the recovery after COVID-19 will be V-shaped, L-shaped, or Nike swoosh-shaped. Usually, a V-shaped rebound is explained using quarter-on-quarter growth rates, while L-shaped or Nike swoosh-shaped recoveries are mostly discussed in terms of GDP levels. Therefore, the shape of the rebound depends on the criteria used. From a quarter-on-quarter perspective, South Korea's quarterly growth rate is still maintaining a V shape (1st quarter -1.3%, 2nd quarter -3.3%, with mid-1% growth expected in the 3rd quarter).

- What impact did this year's record-breaking monsoon have on the economy?

▲ Due to the prolonged record monsoon, outdoor activities decreased, leading to reduced leisure activities and contraction in goods and services consumption. The cooler temperatures compared to the average lowered sales of air conditioners and fans. Construction activity also slowed down. It is estimated that the monsoon lowered the third-quarter growth rate by about 0.1 to 0.2 percentage points.

- What about the effects of the first emergency disaster relief fund and the third supplementary budget?

▲ The first disaster relief fund of 14.2 trillion won is considered government transfer expenditure that was likely used for private consumption. However, to estimate its impact on the growth rate, it is necessary to calculate the additional spending beyond what people had originally planned, which is difficult to determine, so it is hard to present a precise figure. Nevertheless, data at the time showed increased consumption centered on health, beauty, and groceries, indicating a positive effect. The third supplementary budget is estimated to have had an effect of raising the annual growth rate by 0.1 to 0.2 percentage points.

- How does the Bank of Korea assess the effects of government real estate measures? How long is the real estate price rise expected to continue?

▲ Expectations for housing price increases rose, leading to an expanded upward trend since June. In response, the government announced several demand suppression policies and supply expansion measures, and recently the rate of increase has slowed. The recent government measures are evaluated as showing a strong commitment to stabilizing the housing market. They are expected to be effective in curbing investment demand from multi-homeowners. Given the government's firm will and strong measures, it is forecasted that the housing price rise will be difficult to maintain at a high level going forward.

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