[Q&A] Bank of Korea: "If growth is 0.6% in Q3 and Q4, 4.0% growth is possible"

The Bank of Korea Announces 'Preliminary National Income for Q2 2021'

[Asia Economy Reporters Eunbyeol Kim and Sehee Jang] South Korea's economic growth rate for the second quarter of this year recorded 0.8%. This is a 0.1 percentage point upward revision from the preliminary figure (0.7%) announced in July. "If the economy grows by 0.6% quarter-on-quarter in the third and fourth quarters, an annual growth rate of 4% is achievable," it was stated.

Shin Seung-cheol, Director of the National Accounts Department at the Bank of Korea, said at a press conference on the 2nd after announcing the "2021 Second Quarter National Income (Preliminary)" report, "The possibility of achieving 4% annually has slightly increased, but since the revision is not large, it will not significantly affect the annual forecast."

Below is a Q&A with Director Shin.

- What is the reason for the 0.1 percentage point upward revision of the second quarter real Gross Domestic Product (GDP) growth rate compared to the preliminary figure?

▲ It is the result of additionally reflecting basic data that could not be used at the time of the preliminary estimate. This estimate incorporated data such as June industrial activity trends, June balance of payments, and second quarter business and management institutions' operating results.

- How much growth is required in the remaining third and fourth quarters to achieve 4% growth this year?

▲ If the economy grows by 0.6% quarter-on-quarter in the third and fourth quarters, an annual growth rate of 4.0% can be realized. The possibility of achieving 4% annually seems to have slightly increased. However, since the revision is not large, it is expected not to significantly affect the annual forecast.

- What is the outlook for the third quarter?

▲ Currently, there are not many figures available for the third quarter. We can refer to July industrial activity trends, July card usage, July-August customs-based exports, Consumer Sentiment Index (CSI), and Business Survey Index (BSI). Private consumption is expected to be somewhat negatively affected due to the resurgence of COVID-19. In the July industrial activity trends, retail sales and July card approval statistics show negative impacts concentrated in restaurants and cultural/recreational sectors. However, the extent of the negative impact is considerably less compared to previous outbreaks. Facility investment and construction investment are expected to show solid growth. In the second quarter, construction investment faced issues such as weather and instability in building material supply. Recent leading indicators like order amounts suggest improvement in the second half of the year. Facility investment is also expected to continue increasing, centered on semiconductors. Exports, based on customs data for July-August, show a high growth rate compared to the same period last year. Most major products show favorable performance, so the third quarter is expected to maintain a positive trend.

- Has the increase in private consumption led to a decrease in the savings rate? Do you consider private consumption to have recovered to pre-COVID-19 levels?

▲ The size of private consumption in the second quarter is about 98% of the fourth quarter of 2019, before COVID-19. Although private consumption increased significantly in the second quarter, it still slightly lags behind pre-COVID-19 levels. The increase in private consumption in the second quarter is due to a shift to growth in restaurants and entertainment/cultural services. As the consumption rate rose, the savings rate fell. When an economic crisis hits, private consumption tends to decrease, causing the savings rate to rise. The total savings rate had been rising since the outbreak of COVID-19 but temporarily fell as private consumption increased in the second quarter. There is no significant change in the flow from savings to consumption.

- Do you see any possibility that the government's supplementary budget (추경) will stimulate inflation?

▲ The possibility that the supplementary budget will act as an inflationary pressure is low. Since the supplementary budget is intended to support self-employed individuals and citizens facing difficulties, it is expected to help alleviate the contraction of private consumption. Consumer prices have been rising due to price increases in agricultural and livestock products and petroleum products. The expansion of the domestic deflator seems to reflect the rise in consumer prices.

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