Hyundai Research Institute: "South Korea Cannot Rule Out the Possibility of Stagflation"

[Asia Economy Reporter Lim Chun-han] There is a possibility of stagflation occurring in Korea, where prices rise sharply despite low economic growth, and preparations are needed, according to experts.

On the 7th, Hyundai Research Institute stated in its report "Recent Economic Trends and Economic Assessment" that "It is difficult to rule out the possibility of stagflation as the recent economic recession continues and inflationary pressures increase."

The institute pointed out, "The year-on-year economic growth rate has been declining from the second quarter to the fourth quarter of last year," adding, "This means that the Korean economy has not returned to the pre-COVID-19 crisis level and is still in a recession phase."

The institute explained, "The previous low inflation trend has ended, and recently all price indicators are on the rise, increasing the possibility of inflation," noting, "The expected inflation rate remained in the 1% range from September 2019 until recently, but rose to 2% in February."

Additionally, the 'additional resurgence of COVID-19' and 'entrenchment of economic polarization' were seen as risk factors determining Korea's economic direction. The institute expressed concern, saying, "If additional resurgences occur this summer and winter while the third wave of COVID-19 has not ended, the economic rebound could weaken significantly, increasing the possibility of failing to escape the recession." It continued, "The gap between export and domestic markets is leading to economic polarization between manufacturing and service industries, as well as between non-face-to-face and face-to-face sectors," adding, "This is likely to limit the speed of economic recovery going forward."

The institute emphasized, "To respond to the possibility of stagflation, unnecessary factors driving price increases must be suppressed," and stressed, "Along with short-term efforts to overcome the recession, active investment promotion efforts are needed to prepare for mid- to long-term market normalization after COVID-19."

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