Omicron and Global Supply Chain Disruptions... A Variable for Achieving 4% Annual Growth

The Bank of Korea "Finds It Difficult to Predict Omicron's Real Economy Impact"
Omicron Penetrates Domestic Market... Private Consumption, Exports, and Investment All Affected

[Image source=AP Yonhap News]

[Asia Economy Reporter Jang Sehee] The Bank of Korea has presented the preliminary real gross domestic product (GDP) growth rate for South Korea in the third quarter (July-September) of this year as 0.3% quarter-on-quarter. Amid a gradual slowdown in this year's growth rate, the Omicron variant and prolonged global supply chain disruptions are expected to be significant variables for achieving the annual 4% growth target.

According to the Bank of Korea on the 4th, the real GDP growth rate for the third quarter was preliminarily estimated at 0.3% compared to the previous quarter. This figure is the same as the flash estimate released on the 26th of last month and is the lowest level since -3.2% in the second quarter of last year. Looking at quarterly growth rates, after recording 2.2% in the third quarter of last year, it maintained an upward trend for five consecutive quarters with 1.1% in the fourth quarter, 1.7% in the first quarter, 0.8% in the second quarter, and 0.3% in the third quarter of this year. To achieve the annual 4.0% growth target set by the Bank of Korea and the government, the remaining fourth quarter must grow by more than 1.03% quarter-on-quarter.

Exports Increased but Investment Plummeted... National Income Declined

In the third quarter, private consumption decreased by 0.2%, mainly in the service sectors such as food, accommodation, and entertainment culture. Construction investment fell by 3.5%, centered on civil engineering construction, due to the impact of rising raw material prices, and facility investment also decreased by 2.4%, mainly in transportation equipment amid the shortage of vehicle semiconductors. Government consumption increased by 1.3%, mainly due to spending on goods. Exports rose by 1.8%, led by coal and petroleum products, machinery, and equipment, while imports, including automobiles, decreased by 0.7%, mainly due to a decline in transportation equipment. Real gross national income (real GNI) in the third quarter decreased by 0.7% compared to the previous quarter, indicating a reduction in income earned from overseas compared to income generated domestically.

Amid the sluggish growth trend, the Bank of Korea also views the Omicron variant and global supply chain disruptions as important variables for future growth.

Shin Seungcheol, head of the Bank of Korea's National Accounts Department, explained, "There is not enough information about Omicron yet," adding, "It is difficult to predict how Omicron will affect the real economy." He further noted, "During the emergence of the Delta variant, global supply chain disruptions worsened and affected the sentiment of economic agents." However, since the fourth quarter is almost over, he expects the growth trend to continue, focusing on private consumption and construction investment.

'Omicron' Penetrates Domestic Market... Private Consumption, Exports, and Investment All Impacted

Experts also agree that, depending on the level of analysis, the Omicron variant could deal a blow to the future economic trend.

Jung Kyucheol, head of the KDI Economic Outlook Office, stated, "If domestic quarantine measures are strengthened, the private consumption sector will be immediately affected, and supply chain disruptions will worsen due to overseas factory shutdowns, causing exports and investment to decline." He added, "The medical community says analysis of Omicron will be possible in 2 to 3 weeks," noting, "The economic impact will vary depending on the extent of the analysis."

Kim Sangbong, professor of economics at Hansung University, explained, "Annual 4.0% growth seems possible due to fiscal effects such as supplementary budgets, but uncertainty has increased due to Omicron and other factors," adding, "However, even if 4.0% growth is achieved, the average growth over two years would be 1.5%, which still falls short of the usual 1.8-2.0% level."

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