The Bank of Korea Says "4.8% Growth Possible if Vaccine Rollout Accelerates Rapidly"

Bank of Korea 'Economic Outlook for May 2021'

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] The Bank of Korea forecasted that considering domestic and international conditions, the economic growth rate this year will record 4.0%, and if vaccine inoculation expands faster than expected, the growth rate could rise up to 4.8%.

In the 'May 2021 Economic Outlook' released on the 27th, the Bank of Korea stated, "The 4.0% growth rate predicted in the baseline scenario assumes that vaccine inoculation will significantly expand in the second half of this year, gradually calming the spread of infectious diseases." The Bank of Korea assumed a global economic growth rate of 5.8% and a global trade growth rate of 8.1% in this economic outlook.

The Bank of Korea predicted that if vaccine inoculation expands faster than expected, the growth rate could increase up to 4.8%. Faster vaccine inoculation could normalize economic activities and accelerate the recovery of industries severely affected by COVID-19. Professor Inho Lee of Seoul National University’s Department of Economics said, "If vaccine incentives are introduced, domestic demand could also be further stimulated."

The Bank of Korea also revised the growth rate forecast for next year upward from the previous 2.5% to 3.0%. The optimistic scenario projects a growth rate of 3.6% for next year.

In February alone, the Bank of Korea had projected this year’s growth rate at 3.0%. Raising the forecast by 1.0 percentage point in just three months is unprecedented. The Bank of Korea explained that many other countries have also significantly revised their growth forecasts upward. Countries with rapid vaccine inoculation speeds such as the United States, the United Kingdom, and Israel, or countries with high external openness like Canada, Mexico, Australia, and Taiwan, have recently revised their growth forecasts upward by about 1 to 2 percentage points.

The United States (6.5%) recently raised its growth forecast by 2.3 percentage points. The United Kingdom (7.25%) increased by 2.25 percentage points, and Israel (4.9%) by 1.15 percentage points. Taiwan also raised its previous forecast from 3.68% to 4.53%, an increase of 0.85 percentage points.

According to the Bank of Korea’s economic outlook, this year, the Korean economy is expected to grow evenly across exports, facility investment, and private consumption. The Bank of Korea explained, "Domestic economy is expected to expand its recovery as exports and facility investment continue to perform well due to global economic recovery, and private consumption also shows an improving trend."

Private consumption is expected to increase by 2.5% this year as household sentiment recovers and income conditions improve. Construction investment is projected to grow by 1.3%, mainly driven by building construction. The Bank of Korea forecasts that merchandise exports will increase by 9.0% this year as major countries resume economic activities and the IT sector improves.

The number of employed persons is expected to increase by 140,000 this year and by 230,000 next year, according to the Bank of Korea. The Bank of Korea stated, "The employment situation is expected to recover moderately as the slump in face-to-face service sectors gradually eases and the manufacturing industry improves." Last year, the number of employed persons decreased by 220,000 annually, so this year marks a positive turnaround.

The consumer price inflation rate is estimated at 1.8% this year due to rising international oil prices increasing supply-side pressures and strengthening demand-side price pressures amid economic recovery. However, the inflation rate is expected to remain at 1.4% next year. The Bank of Korea said, "Next year, consumer price inflation will be lower than this year as supply-side pressures ease, but core inflation is expected to continue rising as the economic improvement trend persists."

The current account surplus is projected at $70 billion in 2021 and $65 billion in 2022. The ratio of current account surplus to Gross Domestic Product (GDP) is expected to gradually decline from the mid-4% range last year to the mid-3% range this year and next year.

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