Despite Export and Growth Rate Slumps... Bank of Korea Says High Possibility of Maintaining National Income at $30,000

If the average exchange rate remains below 1,292.6 won for the next 4 months, it is possible

Park Seong-bin, Director of the National Accounts Department at the Economic Statistics Bureau of the Bank of Korea, is explaining the provisional second-quarter national income at the Bank of Korea in Jung-gu, Seoul, on the 1st.

[Asia Economy Reporter Kim Eunbyeol] Although the new coronavirus infection (COVID-19) continues to rage worldwide, causing ongoing export setbacks, it is expected that this year’s per capita national income will comfortably remain in the $30,000 range. Unlike the early stages of the COVID-19 pandemic, the financial market is showing stability, maintaining the won-dollar exchange rate at an appropriate level.

On the 1st, Park Seongbin, Director of the National Accounts Division at the Economic Statistics Bureau of the Bank of Korea, stated at the second-quarter national income (provisional) briefing, "Assuming nominal Gross National Income (GNI) adjusted for inflation grows by -1% annually (based on the Bank of Korea’s baseline scenario), as long as the annual average exchange rate does not exceed 1,233.60 won, achieving a per capita national income of $30,000 is possible." He added, "Considering the average exchange rate from January to August was 1,203.6 won, if the average exchange rate for the remaining four months stays below 1,292.6 won, the likelihood of reaching a per capita national income of $30,000 is quite high." As of 10:44 a.m. that day, the won-dollar exchange rate was 1,185.69 won, showing stable movement below 1,200 won recently.

Even if COVID-19 unexpectedly spreads further and nominal GNI falls to -2%, the Bank of Korea expects a high possibility of maintaining a per capita national income of $30,000. Assuming nominal GNI at -2%, calculations show that if the exchange rate remains at 1,255.6 won for the rest of the period, per capita national income will exceed $30,000. Director Park said, "Even in a pessimistic scenario, the possibility of per capita national income falling short of $30,000 is small. However, since uncertainty has increased due to the spread of COVID-19, it is necessary to monitor the situation more closely."

The Bank of Korea announced that the provisional GDP growth rate for the second quarter was -3.2%. Although this is a 0.1 percentage point upward revision from the preliminary figure (-3.3%), it is the lowest level since the fourth quarter of 2008 (-3.3%) during the financial crisis. Unlike the preliminary figure, which was based on surveys from April to May, this provisional growth rate was calculated using all data from April to June, including June’s industrial activity trends, balance of payments, and corporate performance data.

With the upward revision of the second-quarter provisional figure, the Bank of Korea stated there is an annual growth rate upward effect of about 0.04 to 0.05 percentage points. On the 27th of last month, the Bank’s Research Department projected this year’s annual growth rate at -1.3%. If the growth rate for the third and fourth quarters each records 1.3% quarter-on-quarter, the forecast can be achieved.

Meanwhile, the nominal GDP growth rate for the second quarter, which reflects prices in real GDP, recorded -1.0%. While the real GDP growth rate dropped nearly 2 percentage points from -1.3% in the first quarter to -3.2% in the second quarter, the nominal GDP growth rate improved from -1.6% to -1.0% during the same period. This is because the GDP deflator, which indicates the overall price level of the country, turned positive at 1.2%. It is the first time in six quarters since the fourth quarter of 2018 that the GDP deflator has recorded a positive figure.

Director Park explained, "Due to the impact of COVID-19, the domestic deflator fell to 0.7% compared to 1.7% in the first quarter, but the export (-6.4%) and import deflators (-8.8%) declined more sharply." As COVID-19 affected the world, international oil prices dropped to the $20?30 per barrel range in the first half of the year, causing import prices to fall more sharply than export prices, which had the effect of raising the overall deflator. Director Park added, "The drop in oil prices reduced production costs for companies, which in turn improved profitability."

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