[Q&A] Bank of Korea: "Q1 0.2% Growth Outlook Valid... Need to Monitor Excise Tax Effect"

Provisional National Income Figures for Q4 and Full Year 2024 Announced by the Bank of Korea

The Bank of Korea announced on the 5th that its previous forecast of South Korea's real Gross Domestic Product (GDP) growth rate for the first quarter of this year at 0.2% remains valid. Various indicators generally show sluggish performance, maintaining a low-growth trend, but the government's domestic demand stimulation effects, such as the reduction of individual consumption tax, could act as upward factors.

On the 5th, the 2024 Q4 and annual national income (provisional) briefing was held at the Bank of Korea in Jung-gu, Seoul. (From left) Hyun-Young Lee, Head of the Expenditure National Income Team; Chang-Ku Kang, Head of the National Income Department; Chang-Hyun Park, Head of the National Income General Team; Geon Kim, Manager of the National Income General Team. Provided by the Bank of Korea.

Kang Chang-gu, Director of the National Income Department, stated this during a press briefing on the '2024 4th Quarter and Annual National Income (Provisional)' held that morning.

Regarding per capita Gross National Income (GNI), Director Kang said, "As with last year, it is expected to be higher than Japan and Taiwan," and added, "Among countries with populations exceeding 50 million, it seems we will rank sixth." On the timing of reaching $40,000, he added, "The International Monetary Fund (IMF) sees it as 2027, but considering the increasing volatility in exchange rates, it is necessary to observe further."

Below is a Q&A session.

- Last year, South Korea's per capita GNI was recorded at $36,624. Is this still a higher level compared to Japan and Taiwan?

▲ Based on the Taiwan Statistics Bureau's announcement, Taiwan's per capita GNI is estimated at $35,188. Japan announced its total GNI, and after adjusting for population and exchange rates, we calculated it to slightly exceed $34,500. As with last year, South Korea is expected to be higher than Japan and Taiwan. The respective exchange rate depreciation rates are 4.3% for South Korea, 7.4% for Japan, and 3.0% for Taiwan.

- How does South Korea rank among countries with similar population sizes, specifically those with populations around 50 million?

▲ Among countries with populations of 50 million, those with higher per capita GNI than South Korea are the United States, Germany, the United Kingdom, France, and Italy, in that order. South Korea is expected to be sixth. Italy's per capita GNI data has not yet been released, but using IMF projections, it is estimated to be around $38,500.

- When do you expect South Korea to enter the $40,000 per capita GNI bracket?

▲ South Korea's nominal GNI growth rate has been on an upward trend. Although growth rates declined during crises like the IMF crisis or COVID-19, negative growth occurred only once during the IMF crisis. However, when converted to dollar terms, it is affected by the dollar's fluctuations. Due to the large volatility in dollar terms, growth tends to be less or even decline. If it is considered achievable within a few years, exchange rate trends will be the most important factor. The IMF projected South Korea to reach $40,000 in 2027, but considering the increased exchange rate volatility since then, it is necessary to observe the situation further.

- Please evaluate whether the economic growth forecast of 0.2% for the first quarter of this year will be achieved.

▲ Recent credit card usage data and customs export figures for January and February show an overall sluggish trend. Customs exports were negative in January due to reduced working days during the Lunar New Year holiday but recorded a slight increase in February. Combining January and February results in a negative figure. However, when considering average daily exports adjusted for working days, there was an increase. If GDP is converted to volume terms, price factors could become variables. The government's domestic demand activation measures, such as the reduction of individual consumption tax and rapid fiscal execution in the first half of the year, could act as upward factors. The release of new mobile phone models is also an upward factor, but since it occurred in February, its effects are expected to appear later. For now, the first quarter growth forecast is considered valid.

- Construction investment showed a large negative growth rate (-4.5%) in the fourth quarter. How do you view the current situation?

▲ Construction investment was sluggish in the fourth quarter due to lower-than-expected performance in construction achievements and government construction investment. It is expected that government construction investment faced delays or disruptions in December last year. Construction investment has been cumulatively affected by reduced groundbreaking and orders, and it is expected that the sluggish trend will not easily recover this year.

- The GDP deflator rose significantly by 4.1% compared to the same period last year. What is the possibility that the increased GDP deflator will affect inflation?

▲ GDP includes not only household prices but also prices for businesses, domestic overall prices, and export prices. Since it includes export and import prices, it sometimes differs from the Consumer Price Index (CPI), which reflects household price levels. However, domestic demand and private consumption in the GDP deflator show trends very similar to the CPI.

▲ The most important factor to watch in this year's inflation is import prices. Domestic prices show a stable trend, but if import prices rise, they could affect domestic prices through raw materials or final products. It is also necessary to observe how companies pass on prices with a time lag. However, import prices themselves are showing signs of slowing down, so it is currently not considered a major concern.

- Is there a possibility that Homeplus's corporate rehabilitation procedure will affect national income or GDP?

▲ Consumption patterns are shifting from offline to online, and GDP reflects this. Homeplus is undergoing corporate rehabilitation for the same reason, so it is following the same trend. GDP is influenced more by changes in consumer behavior resulting from how companies change rather than the companies themselves, so the trend needs to be monitored further. If Homeplus withdraws stores and those sites are developed for real estate supply, it could even become a positive factor for growth.

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