Government Projects 4.2% Growth Rate This Year... Private Consumption Recovers Only Half

3.0% Growth Rate Forecast for Next Year... Impact of Economic Recovery and Low Growth Base Effect
Experts Say "Government Stimulus Boosts Growth Rate"

[Asia Economy Reporter Jang Sehee] Although the government projected this year's economic growth rate (real GDP growth rate) at 4.2%, it forecasted that private consumption would not recover to pre-COVID-19 levels within the year. While expecting the fiscal stimulus so far to drive the recovery, it judged that returning to the previous growth trajectory would be insufficient.

On the 28th, the government projected an economic growth rate of 4.2% for this year through the "2021 Second Half Economic Policy Direction." This figure is 1.0 percentage point higher than the forecast (3.2%) announced at the end of last year.

Lee Eokwon, First Vice Minister of the Ministry of Economy and Finance, said, "Looking at the economic flow, there are aspects recovering faster than expected, but not all sectors are improving." He added, "Especially the employment market has not recovered to pre-COVID levels," emphasizing, "Support is needed for the parts where recovery is slow." Next year, the economic growth rate is expected to record 3.0% due to economic recovery and the base effect of this year's low growth.

Government Growth Rate Projection Higher than Bank of Korea and KDI... Inflation Expected to Rise 1.8% This Year

The government's growth rate projection is 0.2 percentage points higher than the Bank of Korea's official forecast (4.0%) and 0.4 percentage points higher than the Korea Development Institute's (3.8%). However, it is 0.1 percentage points lower than the Capital Research Institute's forecast (4.3%).

With a significant increase in private consumption, the GDP growth rate was also revised upward. Private consumption is expected to rebound by 2.8% this year, but this is only half of the -5.0% decline in 2020.

The consumer price inflation rate is projected at 1.8% this year and 1.4% next year. The government expects inflationary pressure to ease in the second half of the year due to improved supply conditions in agricultural and livestock products and international oil prices.

The number of employed persons is expected to increase by 250,000 compared to last year. Although private hiring remains sluggish due to COVID-19, the government plans to focus on employment recovery through 'fiscal jobs' such as New Deal jobs and youth job projects. Annually, it is expected to recover more than last year's decrease (-220,000). The employment rate (ages 15-64) is projected to be 66.4% this year and 66.8% next year.

Government Expects 250,000 Increase in Employment This Year... Experts Say "4.2% Growth Reflects Expansionary Fiscal Policy"

The government explained that achieving a 250,000 increase in employment is possible considering the first half of the year's employment figures. A government official said, "If employment increases at the same level in the second half as in the first half, a 250,000 increase is achievable." In fact, the number of employed persons increased by approximately 130,000 from January to May compared to the same period last year. Employment turned to an increase in March (314,000) and has shown growth for three consecutive months.

Exports this year are expected to increase by 18.5% compared to last year, and imports by 22.4%. Next year, they are projected to increase by 3.8% and 3.0%, respectively. The current account balance is expected to record a surplus of $77 billion, slightly higher than last year's $75.3 billion.

Professor Kim Soyoung of Seoul National University's Department of Economics evaluated, "Since the government has injected a lot of fiscal spending, achieving 4.2% growth is quite possible." He added, "Since the economy is already recovering, overall economic stimulus measures are unnecessary," pointing out, "If the government spends a lot, private spending inevitably decreases by the same amount."

Professor Sung Taeyoon of Yonsei University's Department of Economics analyzed, "Considering the decrease in disposable income, the recovery in the private sector is expected to be limited," and "The significant increase in growth rate is ultimately due to expansionary fiscal policy and the base effect."

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