"Korea Must Normalize Economic Activities Without Stimulating Prices to Overcome COVID-19"

Insurance Research Institute "We Must Guard Against Inflation Instability More Than Fiscal Deterioration in Our Country"

[Asia Economy Reporter Seo So-jeong] It has been pointed out that for South Korea to effectively overcome COVID-19, an important policy goal should be to "normalize economic activities as much as possible while minimizing inflationary pressures."

According to the June 6 report titled "Comparison of Economic Recovery Characteristics of Major Countries After the Pandemic" by the Korea Insurance Research Institute, among 34 of the 38 OECD countries with available statistics (excluding Norway, Costa Rica, Colombia, and Chile), 20 countries including South Korea saw their 2021 Gross Domestic Product (GDP) exceed 2019 levels, indicating that many countries have recovered to pre-COVID-19 levels.

However, in terms of private consumption, 23 countries including South Korea failed to recover to 2019 levels despite the recovery trend in 2021.

In particular, the recent trends in real GDP and private consumption among 34 OECD member countries show that many countries are experiencing more difficulty recovering private consumption than GDP.

Among the 34 countries, nine countries including the United States, Denmark, and Israel had both GDP and private consumption in 2021 exceed 2019 levels, whereas 12 countries including Germany, France, the United Kingdom, and Japan had both GDP and private consumption below 2019 levels.

Eleven countries including South Korea, Australia, and the Netherlands recovered real GDP but did not recover private consumption to 2019 levels, while two countries, Bulgaria and Iceland, showed the characteristic of recovering private consumption despite real GDP not recovering.

Senior Research Fellow Lee Tae-yeol of the Korea Insurance Research Institute stated, "Private consumption is a variable closely related to the public’s perceived economic conditions and is the indicator most affected by COVID-19 related quarantine measures, so it is necessary to pay attention to related trends." He added, "Considering that there are more cases where GDP recovers but private consumption does not than the opposite, it appears that major countries are facing greater difficulties in recovering private consumption."

Lee also explained, "After COVID-19, many countries prioritized the recovery of private consumption, which is directly related to the general public, over total GDP as a policy goal. Fiscal policies often focused more on increasing private consumption through income support rather than increasing government consumption."

Furthermore, Lee diagnosed that when comparing South Korea with other countries regarding the relationship between private consumption growth and inflation, it is difficult to say that South Korea’s inflation instability is relatively favorable compared to the increase in private consumption.

Eight countries including Israel, Sweden, the United Kingdom, and France showed lower inflation rates but higher private consumption growth rates than South Korea. Conversely, only five countries including Germany, the Netherlands, and Latvia had higher inflation rates and higher private consumption growth rates than South Korea.

Lee concluded, "When judging fiscal and inflation conditions related to private consumption recovery by simply comparing countries, South Korea seems to need to be more cautious about inflation instability than fiscal deterioration." He added, "Considering that there are more countries with lower inflation rates and higher private consumption growth rates than South Korea than the opposite, attention should be paid to the possibility that domestic demand recovery could further stimulate inflation."

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