AMRO "South Korean Economy Strong Rebound Over 2 Years... 3.2% Growth This Year"

[Sejong=Asia Economy Reporter Moon Chaeseok] The ASEAN+3 Macroeconomic Research Office (AMRO) forecast South Korea's economic growth rate for this year at 3.2%.

According to the Ministry of Economy and Finance on the 18th, AMRO conducted annual consultations with South Korea via video conference from the 16th of last month to the 11th of this month, and projected South Korea's economic growth rates for this year and next year at 3.2% and 3.0%, respectively.

South Korea's economy was less affected by the COVID-19 pandemic compared to most advanced countries last year, supported by limited social distancing measures and strong global demand for electronic devices, and it is expected to rebound strongly over the next two years.

Sumio Ishikawa, head of the mission, said, "Gradual global vaccine supply and the reopening of the world economy will drive this recovery through domestic and external demand recovery."

However, he analyzed that growth momentum will not appear evenly across sectors, and due to ongoing quarantine measures and uncertainties in employment recovery, face-to-face service industries and domestic consumption will continue to lag.

AMRO identified ongoing pandemic-related concerns, potential delays in global vaccination programs, and US-China trade conflicts as risk factors that could delay the recovery of South Korean exports.

They pointed out that potential pandemic resurgence and high household debt could dampen domestic demand, and from a long-term perspective, the pandemic and rapid development of digital technology could deepen income inequality between high-income and low-income groups.

Considering the rapid increase in debt and the weakening financial condition of the corporate sector, especially 'zombie companies,' there is a possibility of deterioration in the asset soundness of financial institutions.

In a low-interest-rate environment, financial imbalances have appeared in the form of accumulated household debt and sharp rises in housing prices and stock prices, but thanks to strengthened macroprudential policies, tightened lending standards, and ample asset buffers of financial institutions, these situations are not expected to cause systemic risks.

However, a sharp rise in interest rates or asset price adjustments could burden the financial soundness of highly leveraged mortgage borrowers and stock investors, the report added.

AMRO suggested that to sustain economic recovery amid ongoing uncertainties, expansionary fiscal policy and accommodative monetary policy should be maintained.

They evaluated the current monetary policy stance as sufficiently accommodative to support economic recovery and emphasized that fiscal measures should prioritize supporting vulnerable groups for more robust and inclusive economic growth.

At the same time, from a medium-term perspective, a strong commitment is required to maintain fiscal sustainability amid expanding fiscal deficits and rapidly increasing government debt.

For financial stability, policy authorities should strengthen monitoring of the credit soundness of financial institutions, and since risk-taking behavior is increasing due to the prolonged low-interest-rate environment, current macroprudential measures should continue to be maintained to mitigate the accumulation of financial imbalances.

Regarding the Korean New Deal policy, AMRO supported it as a timely measure for the post-pandemic era by promoting a green economy, digitalization, and new growth engines.

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