[Weekly Review] Employment Market Frozen by COVID-19... Bank of Korea Holds Base Interest Rate Steady

[Asia Economy Reporter Eunbyeol Kim] The employment market is freezing due to the resurgence of the novel coronavirus infection (COVID-19). The number of employed people in September decreased by nearly 400,000, marking the largest decline in four months, and the unemployment rate soared to the highest level in 20 years. The government has recognized the worsening employment situation seriously and stated that it will make efforts to support vulnerable employment groups and create jobs.

As the domestic recession caused by the resurgence of COVID-19 continues, government tax revenue as of the end of August has decreased by 17 trillion won compared to last year. Despite the tax shortfall, government spending has significantly increased due to COVID-19 response measures, resulting in a record deficit in the management fiscal balance of 96 trillion won as of the end of August. This exceeds 80% of this year's year-end management target of 118.6 trillion won. Accordingly, central government debt stood at 794.1 trillion won as of the end of August, approaching the 800 trillion won mark.

Given the ongoing economic uncertainty domestically, the Bank of Korea decided to keep the base interest rate at a record low of 0.50% per annum. Bank of Korea Governor Lee Ju-yeol stated, "We will operate monetary policy in a accommodative manner to support economic recovery."

Record-breaking Autumn Chill in the Employment Market

According to the 'September Employment Trends' released by Statistics Korea on the 16th, the number of employed people last month was 27,012,000, down 392,000 from the same period last year. This is the largest decrease in four months since May (392,000). The number of employed people has been declining for seven consecutive months.

The employment rate for those aged 15 and over was 60.3%, down 1.2 percentage points from the same period last year. This is the lowest figure since September 2012 (60.2%) for the same month.

The employment rate for those aged 15 to 64, the OECD comparison standard, was 65.7%, down 1.4 percentage points from the same period last year. This is also the lowest since September 2014 (65.9%) for the same month.

The number of unemployed people reached 1 million, an increase of 116,000 from a year ago. This is the largest increase since May (133,000). The unemployment rate rose by 0.5 percentage points to 3.6% compared to a year ago. This is the highest level in 20 years since 2000, excluding 2018, for the month of September.

The economically inactive population was 16,817,000, an increase of 532,000 compared to the same period last year. Among the economically inactive, those classified as 'resting' numbered 2,413,000, the highest since the statistics revision in 2013 for the month of September.

The 'resting' population increased across all age groups, including 20s (83,000), 30s (66,000), 40s (50,000), and those aged 60 and over (51,000). The number of discouraged job seekers rose by 113,000 to 645,000.

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki emphasized, "The government will promptly support those struggling due to worsening employment and double efforts to stabilize the employment market and create jobs." The government plans to swiftly execute the 4th supplementary budget projects targeting employment-damaged groups, such as the Small Business New Hope Fund, Emergency Employment Stability Subsidy, and Special Youth Job-Seeking Subsidy.

National Debt Soon to Surpass 800 Trillion Won

According to the 'Monthly Fiscal Trends October Issue' released by the Ministry of Economy and Finance, total government revenue from January to August was 317.8 trillion won, down 8.8 trillion won from the previous year. In particular, national tax revenue as of the end of August was 192.5 trillion won, a decrease of 17 trillion won compared to the previous year. When the government submitted the 3rd supplementary budget in May, it lowered this year's national tax revenue forecast from 290 trillion won to 279.7 trillion won, and the August revenue was 2.3 trillion won less than the forecast based on this revision. This means tax collection is falling short of government expectations.

Despite the poor national tax revenue, total government expenditure increased by 39.8 trillion won to 388.7 trillion won due to COVID-19 response measures. As a result, the fiscal deficit, which indicates fiscal soundness, has ballooned to a record high. The integrated fiscal balance, which is total government revenue minus total expenditure, showed a deficit of 70.9 trillion won from January to August. The deficit size surged by 48.5 trillion won compared to the previous year.

National debt also broke its record high. As of the end of August, national debt (central government basis) was 794.1 trillion won, an increase of 13 trillion won compared to the end of July. It is approaching the 800 trillion won mark.

However, the government stated that this situation is a result of tax support measures for COVID-19 response and expects to recover to forecast levels in the fourth quarter when these tax measures end.

Bank of Korea Holds Base Rate Steady... Lee Ju-yeol's 'Strict Fiscal Rules' Remarks Spark Controversy at National Assembly Audit

As domestic economic difficulties due to COVID-19 persist, the Bank of Korea, as expected, held the base interest rate steady again on the 14th. Although downward pressure on the economy remains, further lowering the base rate from the record low level was seen as risky due to side effects such as rapid asset price increases.

The Bank of Korea has maintained the current rate for five months since lowering it to 0.50% in May. Governor Lee Ju-yeol said at a press conference after the Monetary Policy Committee meeting, "The domestic economy is expected to show a moderate recovery centered on exports, but uncertainty about the growth path remains high," adding, "This year's GDP growth rate is expected to generally align with the August forecast (-1.3%)." He also noted, "Household loans have expanded, and housing prices have continued to rise both in the metropolitan area and provinces," indicating concerns about rising house prices.

The market expects the Bank of Korea to keep the base rate steady for an extended period. While some suggest the need for an 'exit strategy' such as rate hikes to curb housing price overheating and withdraw liquidity, the likelihood of such measures being implemented soon is low. The Bank of Korea plans to continue unconventional monetary policies like government bond purchases instead of raising the base rate.

Meanwhile, Governor Lee said at the press conference after the Monetary Policy Committee meeting, "Strict fiscal rules are necessary to maintain fiscal soundness in the long term." This remark sparked controversy during the Bank of Korea audit by the National Assembly's Planning and Finance Committee on the 16th. Ruling party lawmakers criticized, saying, "Is he interfering with the current government's policies?" and launched a barrage of criticism.

Democratic Party lawmaker Yang Kyung-sook said, "It is a sensitive situation to discuss the introduction of fiscal rules, but even the governor of the independent Bank of Korea is adding fuel to the controversy," criticizing, "Is the Bank of Korea giving unsolicited advice on government policies during the serious COVID-19 crisis without proposing alternatives?" On the opposition side, lawmakers defended Governor Lee's remarks. Immediately after Yang's comments, People Power Party lawmaker Seo Byung-soo said, "It must be very embarrassing. The Bank of Korea should continue to voice independent opinions," praising the governor.

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