'Was the Impact of COVID-19 Minimal?'... Bank of Korea Forecasts '4% Growth and 200,000 Increase in Employment'

Bank of Korea August Revised Economic Outlook

Maintaining This Year's Growth Rate Forecast at 4.0%

Inflation Rate Forecast Revised from 1.8% to 2.1%

Employment Expected to Increase by 200,000 This Year and 240,000 Next Year

[Asia Economy Reporter Kim Eun-byeol] Despite the fourth wave of COVID-19, the Bank of Korea has projected that South Korea's economic growth will continue on a solid recovery path. Employment is expected to increase by 200,000 this year, which is 60,000 more than the May forecast of 140,000.

On the 26th, the Bank of Korea announced its "August Economic Outlook," maintaining this year's economic growth forecast at 4.0%, the same as the May projection. Next year's growth rate is expected to be 3.0%. The Bank explained, "Although the domestic economy will be affected by the resurgence of COVID-19 for the time being, it is expected to continue a solid recovery trend due to expanded vaccination and strong exports." Based on the robust economic recovery, the Bank's Monetary Policy Committee raised the base interest rate from the historic low of 0.50% per annum to 0.75%.

Private consumption has slowed due to the resurgence of infections but is expected to gradually improve with expanded vaccination and the effects of supplementary budgets. The Bank forecasts an annual increase of 2.8% in private consumption this year.

Facility investment is expected to maintain a solid trend supported by the global economic recovery, increasing by 8.8% annually this year. Construction investment is projected to turn positive at 0.9%, compared to last year's -0.4%, supported by favorable groundbreaking performance.

Goods exports, which rose 14.4% in the first half, are expected to increase by 4.1% in the second half, resulting in an annual growth of 8.9%. The Bank stated, "Goods exports are expected to show a favorable trend due to the economic recovery of major countries."

Employment is expected to increase by 200,000 this year and 240,000 next year. With employment rising by 120,000 in the first half, the increase is expected to expand to 270,000 in the second half. Although the spread of COVID-19 may temporarily slow employment growth, the increase is expected to gradually expand as vaccination rates rise and economic activity restrictions are eased.

Manufacturing employment is expected to slightly increase due to improved business conditions in major industries driven by domestic and external demand recovery. Service sector employment growth is expected to slow temporarily, especially in face-to-face services, but is projected to continue improving as service demand gradually recovers with expanded vaccination.

The Bank also forecasted that the annual consumer price inflation rate will exceed 2%, reaching 2.1%, which is 0.3 percentage points higher than the May forecast of 1.8%. The inflation forecast for next year was also revised upward to 1.5%. This reflects sustained high prices in agricultural and livestock products and international oil prices, along with gradually increasing demand-side inflationary pressures. However, the Bank maintained its previous forecast of 1.2% for core inflation (excluding food and energy) this year.

The Bank stated, "Next year's consumer price inflation is expected to fall below 2% as supply-side factors gradually diminish, but core inflation is expected to continue rising due to ongoing economic recovery."

The current account surplus is projected at $82 billion this year and $70 billion next year. The current account surplus ratio to GDP is expected to remain in the mid-4% range this year, similar to last year, and decline to the high 3% range next year.

Meanwhile, the Bank's growth forecast assumes a significant expansion of vaccination and gradual easing of economic activity restrictions after the fourth quarter of this year. It expects the progression of the pandemic to vary by country depending on vaccination speed. In advanced countries, economic activity restrictions are expected to be largely eased, whereas in emerging countries, the decline in infection spread is expected to be slower.

The Bank's forecast for global economic growth is 5.7% this year and 4.2% next year. It assumes global trade growth of 8.3% this year and an average crude oil import price of $67 per barrel.

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