AMRO Forecasts "3.9% Growth Rate for Korea This Year"... Excludes 4th Wave Impact

2021 Korea Annual Consultation Report

[Sejong=Asia Economy Reporter Son Seon-hee] The ASEAN+3 Macroeconomic Research Office (AMRO) projected South Korea's economic growth rate at 3.9% this year. This is an upward revision of 0.7 percentage points from the forecast of 3.2% released in March. However, the report did not reflect the impact of the fourth wave of COVID-19, which began spreading in earnest from early last month.

On the 23rd, AMRO stated in the "2021 Korea Annual Consultation Report" that "the Korean economy has maintained a recovery trend following a sharp contraction in the second quarter of last year," and "the growth rate is expected to rebound from -0.9% last year to 3.9% in 2021 and 3.0% in 2022, supported by a solid recovery in exports and domestic investment."

As the basis for the upward revision of the growth forecast, AMRO cited the global economic recovery along with "strong demand for electronic devices, automobiles, and other manufactured goods."

However, AMRO pointed out that increased household debt and uncertain employment conditions could dampen private consumption. It also predicted that even within the same economic recovery phase, the "uneven recovery" between face-to-face service industries, which were hit hard by the COVID-19 crisis, and other sectors would continue.

Regarding the government's implementation of strengthened quarantine policies alongside an expansionary fiscal stance with comprehensive fiscal, monetary, and financial policies, AMRO evaluated that these measures "contributed to mitigating economic damage." It added, "Future uncertainties related to COVID-19 pandemic control, the US-China trade dispute, and household debt could weaken South Korea's growth momentum," and recommended, "Expansionary fiscal policy and accommodative monetary policy should be maintained to sustain the economic recovery."

At the same time, AMRO advised, "For more robust and inclusive economic growth, fiscal support measures should focus on vulnerable groups affected by the pandemic," and "as the economic recovery continues, crisis-support measures should gradually transition to recovery-support measures." It further added, "In the medium term, normalization of the expansionary fiscal stance adopted during the crisis should be considered to ensure medium-term fiscal sustainability."

Regarding the current monetary policy stance, AMRO described it as "sufficiently accommodative," and stated, "Financial authorities should continuously and closely monitor the credit soundness and lending standards of financial institutions," and "while providing temporary relief measures to companies facing liquidity constraints, extensions of loan maturities and interest payment deferrals should be regularly reviewed and phased out appropriately."

AMRO is an international organization consisting of the 10 ASEAN countries plus South Korea, China, and Japan, established in 2011 to analyze and monitor regional macroeconomic trends. This annual consultation was conducted via video conference from February 16 to March 11 by a six-member AMRO mission team led by Mission Chief Sumio Ishikawa, engaging with 15 institutions including the Ministry of Economy and Finance, the Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service.

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