[Economic Outlook] Q2 Economic Growth Rate, Inflation Rate, and Next Year's Budget Announcement

Consumer Price Inflation Rate in the 2% Range for Four Consecutive Months Starting April
Attention on How Much Prices Will Rise in August

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] This week, the Bank of Korea will announce the preliminary estimate of the economic growth rate for the second quarter (April to June). This is an indicator that can gauge the possibility of 4% annual growth this year. The government will also disclose the budget plan for next year and the latest consumer price inflation rate.

The Bank of Korea will release the 'Second Quarter National Income (Preliminary)' including the real Gross Domestic Product (GDP) growth rate on the 2nd of next month.

Quarterly GDP growth rate recorded negative growth for two consecutive quarters after the COVID-19 outbreak, with -1.3% in the first quarter and -3.2% in the second quarter of last year, followed by three consecutive quarters of positive growth: 2.1% in the third quarter, 1.2% in the fourth quarter, and 1.7% in the first quarter of this year.

The flash estimate of the second quarter growth rate announced on the 27th of last month was 0.7%. Since the fourth wave of COVID-19 began in the third quarter, growth continued until the second quarter, supported by strong exports, expanded facility investment, and domestic demand recovery. Attention is focused on how much the preliminary estimate of the second quarter growth rate has been revised upward or downward compared to the flash estimate after reflecting additional data such as the June industrial activity trend.

According to the Bank of Korea's analysis, if the quarterly growth rate from the second to the fourth quarter is around the high 0.6% range, the annual growth rate will reach 4%. If the quarterly growth rate is around 0.7 to 0.8%, 4.1 to 4.2% growth is also possible.

The Statistics Korea will release the 'August Consumer Price Trends' on the 2nd of next month. The focus is on whether the inflation rate, which surged again to 2.6% year-on-year, will slow down.

The consumer price inflation rate rose to the 2% range for the first time this year in April (2.3%), then reached a 9-year and 1-month high of 2.6% in May. It slightly eased to 2.4% in June but rose again to 2.6% in July. It has recorded a 2% range increase for four consecutive months. The Bank of Korea previously expected the annual consumer price inflation rate to reach 2.1% this year, exceeding the target of 2.0%.

The government expects inflation to slow somewhat in the second half of the year. It analyzes that the base effect of last year's prices will ease and the supply of agricultural, livestock, and fishery products will recover in the second half.

Additionally, the Ministry of Economy and Finance will announce the budget plan for next year on the 31st of this month. The budget plan is a kind of blueprint for the country's finances next year, including revenue and expenditure.

Park Wan-joo, the Policy Committee Chair of the Democratic Party, said at a briefing after a party-government consultation on the 24th, "If we combine this year's main budget and supplementary budget, it amounts to 604.9 trillion won," and predicted, "The government will have prepared next year's budget around 604 trillion won." The party and government explained that they focused on small business loss compensation, comprehensive youth measures, carbon neutrality, and vaccine and quarantine budgets.

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