[Q&A] BOK: "Korea's Growth Rate Possible at 3.6%... Must Grow 0.5% Each in Q2~Q4"

Bank of Korea Announces Q1 GDP... 'Third Consecutive Quarter of Positive Growth'
Private Consumption Risks Remain

[Asia Economy Reporters Eunbyul Kim, Sehee Jang]"To achieve a growth rate of 3.6%, it is sufficient to record 0.5% growth in each quarter from Q2 to Q4."

Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, stated this on the 27th while announcing the 'Q1 2021 and Annual Real Gross Domestic Product (GDP).' Director Park added, "To reach 4%, each remaining quarter must record 0.7 to 0.8% growth."

Lee Ju-yeol, Governor of the Bank of Korea, said at a press conference following the Monetary Policy Committee meeting on the 15th, "Considering both the global economy and domestic economic movements, a mid-3% growth rate is a sufficiently achievable figure."

The real GDP for Q1 was 470.8467 trillion won, an increase of 1.6% compared to the previous quarter. Real GDP had contracted due to the impact of COVID-19, with -1.3% in Q1 and -3.2% in Q2 of last year, but turned positive at 2.1% in Q3 and has maintained positive growth for three consecutive quarters.

Below is a Q&A with Director Park.

▲ What caused the decrease in export growth compared to Q4 last year? What is the outlook for Q2?

= South Korea has the characteristic of having export-leading industries such as information and communication technology (IT). Exports remained positive due to improvements in the IT sector and the global economic recovery. With the U.S. economic stimulus measures and upward revisions of global economic growth rates, exports are expected to improve for the time being. However, this could change depending on the COVID-19 containment situation.

▲ To achieve mid-3% growth this year, what growth rates must be recorded from Q2 to Q4?

= The Q1 growth rate was 1.6%, which is significantly higher than the initial forecast by the research bureau. Governor Lee Ju-yeol also mentioned that mid-3% growth is possible this year. To reach a 3.6% growth rate, each quarter from Q2 to Q4 must record 0.5%. To reach 4%, it must be 0.7 to 0.8%.

▲ Is 4% annual growth also possible?

= It seems that market expectations will form around achieving growth rates above mid-3%. A revised forecast will be made in May, and it will be necessary to determine whether this is a temporary phenomenon or if stagnation due to COVID-19 will occur. Semiconductor supply instability could also act as a downside risk to growth. If growth of 0.7 to 0.8% is maintained from Q2 to Q4, 4% is possible. To reach 3.8% annually, growth between 0.6 and 0.7% is needed.

▲ Can private consumption be considered to have recovered to pre-COVID-19 levels?

= Private consumption is about 5% below pre-COVID-19 levels. Facility investment rose about 13% compared to Q4 last year, and exports are about 3% higher than Q4 last year. However, construction investment still falls slightly short of pre-COVID-19 levels.

▲ What is the reason for the increase in private consumption in Q1?

= Recently, consumer sentiment has improved, with increased consumption of durable goods such as home appliances and passenger cars, and non-durable goods such as food and beverages also increased due to the Lunar New Year effect. From mid-February, social distancing and business restrictions were eased, leading to a slight improvement in face-to-face services and increased consumption. The speed of private consumption recovery will depend on the extent to which face-to-face activities normalize and the level of demand.

▲ It seems there was a base effect in Q4 last year.

= It is ambiguous to call it a base effect. In private consumption, the third wave of COVID-19 in Q4 last year caused a base effect. However, exports, which are free from domestic COVID-19 spread effects, increased significantly in Q4 last year and grew strongly this time as well. This indicates that the economic recovery trend is gaining considerable momentum.

▲ What is the outlook for private consumption depending on the number of confirmed COVID-19 cases?

= If COVID-19 resurges and business restrictions are strengthened, consumption in face-to-face service sectors is expected to be affected. Private consumption remains a risk factor.

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