How Much Will South Korea's Growth Rebound Be This Year After Last Year's Solid Performance?

Slight Downgrade in Global Growth Forecast Amid COVID-19 Resurgence
However, Rebound Magnitude Larger Due to Last Year's Base Effects... China Forecasted at 8%
South Korea's Growth Rebound Expected to Be Smaller Than Eurozone and Others

[Asia Economy Reporter Kim Eun-byeol] As the novel coronavirus infection (COVID-19) shows signs of resurgence and COVID-19 variants spread, attention is focused on how this year's growth rate forecasts will be adjusted.

Overall growth rate forecasts are likely to be revised downward compared to previous estimates, but it is explained that there is a high possibility of a significant rebound compared to last year due to the base effect from the early spread of COVID-19 last year. In particular, South Korea is expected to achieve a growth rate in the 3% range this year, which represents a significant rebound compared to last year's -1% growth. However, it is pointed out that South Korea's growth rate this year will inevitably be lower than that of major countries benefiting from last year's base effect.

The World Bank (WB) released its "Global Economic Prospects" report on the 6th, forecasting that the global economy will grow by 3.8% this year, supported by active fiscal stimulus measures and consumption recovery in various countries. This is a 0.4 percentage point downward revision from the 4.2% growth forecast announced in June last year.

The WB's forecast is the first growth rate projection for this year released by a major economic forecasting institution. It reflects the impact of the resurgence of COVID-19 in countries worldwide since November last year. Although expectations for global economic recovery have increased due to vaccinations with Pfizer and Moderna vaccines, the winter resurgence may cause the recovery to be weaker than anticipated.

Growth rates for emerging markets and developing countries, including South Korea, are estimated at 5.0%, but this is also 0.4 percentage points lower than last year's forecast. Since China's growth rebound is expected to be very large, South Korea's growth forecast is likely to fall short of the average forecast for emerging countries. The WB projects China's economic growth rate at 7.9% this year, nearly three times that of advanced economies such as the United States, the Eurozone, and Japan, which are expected to grow by 2.9%.

When the WB's growth rate forecast is converted to purchasing power parity (PPP) standards used by the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD), it amounts to 4.2%.

The IMF also projected an economic growth rate of 5.2% for this year in October last year. According to the IMF forecast, the United States is expected to grow by 3.1%, the Eurozone (19 countries using the euro) by 5.2%, and China by 8.2%. The IMF projects South Korea's growth rate at 2.9% this year, relatively lower compared to other countries. While other countries experienced a significant decline in growth last year and thus expect a large rebound this year, South Korea's smaller shock last year means a smaller rebound this year.

Accordingly, economic experts say that the overall recovery should be evaluated by looking at the combined growth rates of last year and this year, and that whether the recovery is genuine can be judged by how much the gross domestic product (GDP) level has recovered compared to the pre-COVID-19 level.

On the 7th, Cho Yoon-je, a member of the Bank of Korea's Monetary Policy Committee, stated, "It is possible to recover the GDP level to the pre-COVID-19 level by the second quarter of this year." He explained, "(In the second quarter) it is expected to recover to around the fourth quarter of 2019, the pre-COVID-19 GDP level," adding, "This can also be seen in terms of per capita GDP." Regarding consumption and employment recovery, he said, "There are concerns that consumption recovery may be delayed due to a rapid increase in private debt," and "Historically, consumption recovers quickly after a crisis ends, but employment recovers much more slowly."

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