The Bank of Korea Forecasts US Economic Growth in the 3% Range Next Year... Impact of Vaccine Distribution and Policy Support

[Asia Economy Reporter Kim Eunbyeol] Next year, the U.S. economy is expected to achieve growth in the 3% range, supported by COVID-19 vaccine distribution and policy support. The European region is also forecasted to continue a moderate growth trend next year.

On the 20th, the Bank of Korea stated in its 'Overseas Economic Focus' report, "The U.S. economy in 2021 is expected to grow by 3.1?3.8% year-on-year, driven mainly by domestic demand such as consumption and investment." The International Monetary Fund (IMF) projected a 3.1% growth rate for the U.S. next year, the Organisation for Economic Co-operation and Development (OECD) forecasted 3.2%, and the median forecast among 76 investment banks (IBs) was higher at 3.8%.

Personal consumption is expected to show a favorable recovery due to increased household savings from this year's consumption contraction, labor market recovery, and additional economic stimulus measures. Corporate investment is anticipated to increase as uncertainties related to COVID-19 and the presidential election diminish. The increased incentives for investment in eco-friendly energy also contribute to the rise in corporate investment.

The Bank of Korea explained, "Recently, the economic impact of the resurgence of COVID-19 in the U.S. has been a major issue, which poses a significant downside risk to the U.S. economic recovery; however, the impact is expected to be limited compared to the early stages of the pandemic."

This is because public fatigue has accumulated due to the prolonged pandemic, and since many businesses have already suffered significant damage, federal and state governments are reluctant to reintroduce high-intensity containment policies. Additionally, consumers and companies are gradually adapting to the new environment through expanded online transactions and changes in work methods, which also reduces the economic shock.

Next year in the U.S., an expansionary policy stance is expected to continue, but the scale of additional economic stimulus is anticipated to be smaller than this year. The recent labor market situation is also an issue, with concerns about the rapid increase in structural unemployment due to uneven recovery speeds across sectors and a large pool of idle labor.

The Eurozone economy is also expected to contract temporarily due to strengthened quarantine measures amid the recent resurgence of COVID-19, but a moderate improvement trend is forecasted for 2021. In the Eurozone, the launch of the economic recovery fund agreed upon at the European Union (EU) summit on December 11 is a major issue. The Bank of Korea said, "for the formal launch, approval from the EU Council and European Parliament, as well as ratification by member state parliaments, remain, and it is expected to help reduce economic disparities within the EU."

It added, "Another issue is the active use of monetary policy to respond to climate change risks currently being discussed within the European Central Bank (ECB)." However, due to conflicts with price stability, the principle of market neutrality, democratic principles, and central bank independence, opinions are divided, and the Bank of Korea expects it will be difficult to reach an agreement in the short term.

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