The Bank of Korea Revises Growth Forecast from 2.3% to 2.1%... Private Consumption Growth Rate at 1.9% (Comprehensive)

Bank of Korea February Economic Outlook

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] The Bank of Korea has lowered its forecast for South Korea's gross domestic product (GDP) growth rate this year from 2.3% to 2.1%, a decrease of 0.2 percentage points. Lee Ju-yeol, Governor of the Bank of Korea, predicted that the growth rate could be negative in the first quarter due to the impact of the novel coronavirus disease (COVID-19).

In its "February Economic Outlook," the Bank of Korea projected this year's economic growth rate to be 2.1%, down 0.2 percentage points from the previous 2.3%, while next year's growth rate is expected to remain unchanged at 2.4%.

This growth forecast is based on the assumption that COVID-19 will peak in March and gradually subside thereafter. The Bank of Korea assessed that "there is high uncertainty in the growth trajectory due to the future developments of the COVID-19 situation."

The economic growth forecast for this year has been revised downward by 0.5% from 2.6% in January last year to 2.5% in July, 2.3% in November, and 2.1% in February this year. The prolonged slump in exports and investment, combined with the spread of COVID-19, has accelerated the economic downturn more than expected.

By sector, private consumption growth was revised down by 0.2 percentage points from 2.1% in the previous economic outlook in November last year to 1.9%. The growth rate for the first half of the year was sharply lowered from 1.9% to 1.1%, but the second half growth rate was raised from 2.2% to 2.6%, offsetting the annual downward adjustment.

The Bank of Korea judged that "private consumption will contract in the short term due to the spread of COVID-19, but is expected to show a relatively rapid recovery once the spread subsides."

Facility investment growth forecast was lowered from 4.9% to 4.7%. However, the Bank of Korea diagnosed that recovery will be seen mainly in IT sectors such as semiconductors and displays. Construction investment growth was slightly revised upward from -2.3% to -2.2%. Although the decline will continue mainly in residential building construction, the decrease is expected to gradually narrow due to improvements in civil engineering construction such as social overhead capital (SOC) facilities.

The growth rate of merchandise exports was adjusted from 2.2% to 1.9%. The current account surplus is expected to slightly expand from a $56 billion surplus to a $57 billion surplus.

The consumer price inflation rate was maintained at the previous forecast of 1.0%. The 2021 growth rate (2.4%) and consumer price inflation (1.3%) also remained unchanged from the November forecast.

The increase in the number of employed persons this year was slightly revised down from 240,000 to 230,000. Among the positive factors amid uncertainties in future growth trends are ▲ the government's expansionary economic response policies ▲ easing of global protectionism due to progress in US-China trade negotiations.

Risk factors that could further darken the economic outlook include the prolonged COVID-19 situation and delayed recovery in the semiconductor industry.