Government Removes Economic 'Uncertainty' After 9 Months... "Domestic Demand Slump Continues"

'Real Economy Uncertainty Persists' Phrase Removed After 9 Months
"Considering Export Recovery... Does Not Mean Uncertainty Has Disappeared"
Burden Remains from Weak Consumption, Employment Decline, and Inflation Rise
February 5-Year Treasury Bond Jumps 13bp Month-on-Month
"Impact of Full-Scale Discussions on 4th Disaster Relief Fund"

Recent Economic Trends (Green Book) booklet. (Image source=Yonhap News)

[Sejong=Asia Economy Reporter Moon Chaeseok] The government recently assessed that despite improvements in exports, uncertainties in the real economy continue. Domestic demand remains sluggish due to social distancing measures following the third wave of COVID-19. It also judged that volatility in financial markets has increased amid concerns over inflation. However, the phrase "continued uncertainty in the real economy," which had been used for the past eight months, was omitted.

On the 19th, the Ministry of Economy and Finance stated in the "Recent Economic Trends (Green Book March issue)" that "Recently, our economy has seen improvements in exports and investment, and the decline in employment has narrowed, but domestic demand remains sluggish due to the spread of COVID-19," adding, "Externally, expectations for global economic recovery have increased due to vaccines and large-scale stimulus measures in major countries, but financial market volatility has somewhat expanded due to inflation concerns."

The Green Book, published monthly by the government, is the official channel through which the government evaluates how it views South Korea's economic situation. Unlike the past eight months, the March issue of the Green Book omitted the phrase "continued uncertainty in the real economy," which implies that the government believes the economy is gradually improving.

Kim Young-hoon, head of the Economic Analysis Division at the Ministry of Economy and Finance, explained, "The phrase 'uncertainty in the real economy' was used continuously for eight months from July last year to February this year," and added, "Considering exports, investment, global economic trends, and outlook comprehensively, we deleted the phrase in this month's Green Book." He continued, "It does not mean that uncertainty within our economy has disappeared at all," and "We will continue to carefully monitor and thoroughly observe related matters going forward."

However, factors weighing down the economy such as sluggish consumption, employment decline, and rising prices were detected in various areas. In particular, consumption was sluggish. Private consumption in the fourth quarter of last year decreased by 1.5% compared to the third quarter and by as much as 6.5% compared to the fourth quarter of 2019. However, last month's domestic card approval amount increased by 8.6% year-on-year, reversing to an upward trend after three months, unlike December last year (-3.9%) and January (-2.0%). In 2020, consumption also showed a two-month consecutive decline in March (-4.3%) and April (-5.7%), when the economic shock from COVID-19 began in earnest.

Employment weakness also persisted. In January, the number of employed persons decreased by 982,000 compared to January last year, marking the largest decline since December 1998 during the foreign exchange crisis, and last month it decreased by 473,000. The unemployment rate last month rose by 0.8 percentage points to 4.9%. However, exports showed signs of recovery, increasing by 9.5% year-on-year despite three fewer working days.

Regarding prices, where inflation concerns have arisen recently due to rising raw material prices, the consumer price index rose by 1.1%, a larger increase than 0.6% in January and 0.5% last year. A Ministry of Economy and Finance official said, "Consumer prices rose due to worsening supply conditions of agricultural, livestock, and fishery products and rising raw material prices."

Volatility in the domestic financial market also increased last month. In particular, government bond yields rose sharply. The 5-year government bond yield last month was 1.45%, up 13 basis points (1bp=0.01 percentage point) from the previous month, and the 3-year yield rose 5 basis points to 1.02%. A Ministry of Economy and Finance official said, "Last month, government bond yields rose sharply due to global interest rate increases and concerns over government bond supply and demand amid the full-scale discussion of the 4th disaster relief fund."

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