The Bank of Korea Maintains Full-Year Growth Rate at 4.0%... Inflation to Continue Rising This Year and Next (Comprehensive Report 2)

Achieving 4% Annual Growth Including Export and Fiscal Effects
Inflation Rate Forecast Revised Up to 2.3%

[Asia Economy Reporter Jang Sehee] The Bank of Korea has maintained its economic growth rate forecasts for this year and next year at 4.0% and 3.0%, respectively, as announced in August. Some experts point out that growth could be constrained due to ongoing global supply chain bottlenecks and the resurgence of COVID-19. Additionally, with the Bank of Korea revising upward the consumer price inflation rates for this year and next, inflationary pressures are expected to intensify.

◆Achieving 4% Annual Growth Possible with Exports and Fiscal Effects= On the 25th, the Bank of Korea's Monetary Policy Committee maintained this year's growth rate at 4.0%. They forecast that domestic demand will rise alongside the continued recovery in exports and the implementation of "With Corona" (gradual return to normal life).

In fact, as of the 20th of this month, export value reached $39.9 billion, a 27.6% increase compared to the same period last year. Considering the number of working days, the average daily export value rose by 23.7%, which is expected to positively contribute to achieving 4% growth. The increase in consumption was also taken into account. Retail sales in September rose 2.5% compared to the previous month, marking the largest increase in six months since March (2.5%). Furthermore, the effects of the supplementary budget executed in the third quarter are expected to be reflected with a time lag in the fourth quarter.

Professor Kim Sangbong of Hansung University’s Department of Economics said, "With continued export strength and increased construction orders due to With Corona, achieving 4% growth seems possible." Professor Andonghyun of Seoul National University’s Department of Economics also predicted, "Due to fiscal spending effects, the fourth quarter growth rate is expected to be higher than the previous quarter (0.3%). Achieving 4% annual growth should be feasible."

◆Global Supply Chain and COVID Resurgence as Variables= The issues lie in global supply bottlenecks and the resurgence of COVID-19. Jung Gyu-cheol, head of the Economic Outlook Office at the Korea Development Institute (KDI), stated, "Because global supply chains have become more developed than before, the risks have also increased. The global bottleneck is expected to continue until the first half of next year and gradually improve in the second half." Since global supply chains are interconnected, a problem in one area can cause widespread issues. Professor Kim emphasized, "If prices rise due to the impact of global supply chains, it will affect the entire economy, including production, investment, and consumption."

The resurgence of COVID-19 is also a concern. Less than a month after implementing With Corona on the 24th of last month, new confirmed cases surged to the 4,000 range. If confirmed cases spike further and quarantine measures are tightened, the service sector will be hit hard, and domestic consumption is likely to weaken. Jung said, "The key is how long With Corona can be maintained. If private consumption and service sector recovery falter, growth could be constrained."

◆Consumer Price Inflation Forecast Raised to 2.3% This Year= The annual consumer price inflation forecast for this year was raised by 0.2 percentage points from 2.1% to 2.3%. Last month, the consumer price index rose 3.2% compared to a year earlier, marking the highest increase in 9 years and 9 months since January 2012 (3.3%). Consumer prices have remained above 2% for seven consecutive months since surpassing the 2% threshold in April at 2.3%. Producer prices in October also rose for 12 consecutive months since November last year, marking the longest period of increase in 10 years. Accordingly, the Bank of Korea revised upward next year’s consumer price inflation forecast from 1.5% to 2.0%, a 0.5 percentage point increase.

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