[Q&A] BOK "Low Possibility of Current Account Deficit in May"

Projected Growth Rate of -1.8% This Year Under Worst-Case Scenario
Growth Rate Projections by Scenario for the First Time Ever

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Lee Hwan-seok, Deputy Governor of the Bank of Korea, said on the 28th regarding the current account outlook, "In April, a negative balance usually appears due to foreign dividend payments, but the possibility of a negative current account in May is low."

Deputy Governor Lee made these remarks at the May 2020 Economic Outlook press briefing held at the Bank of Korea headquarters in Seoul after the Monetary Policy Committee meeting. He said, "The overall trend of the current account is important. Although the surplus size has decreased compared to last year, it has increased compared to other countries."

Meanwhile, according to the 'March 2020 Balance of Payments (provisional)' announced by the Bank of Korea on the 7th, South Korea posted a current account surplus of $6.23 billion, continuing a surplus streak for 11 consecutive months since May last year. The surplus expanded by $1.19 billion compared to March last year ($5.04 billion). The current account is expected to record a deficit in April.

Below is a Q&A with Deputy Governor Lee.

▲You projected next year's growth rate at 3.1%. Isn't this too optimistic? If you were to describe it as a V-shape, Nike-shape, or U-shape, what would it look like?

=Considering that this year's growth rate is negative, it is hard to say the recovery speed is very fast. Whether it is V-shaped, U-shaped, or L-shaped depends on the recovery pattern. It is difficult to specify exactly because the shape varies depending on whether you look at the level of Gross Domestic Product (GDP), quarter-on-quarter, or year-on-year. If the second quarter is the bottom and exports and private consumption improve from the third quarter, it could be seen as V-shaped, but it is hard to say it is a typical V-shape.

▲You forecast an annual growth rate of -0.2%. How do you see the quarterly growth rates for Q2, Q3, and Q4?

=Although we internally prepare quarterly forecast figures, we do not disclose them externally. The second quarter is expected to be the bottom, and the negative growth rate is expected to narrow from the third and fourth quarters. Year-on-year, the first quarter was positive. The second quarter will be negative. The third quarter will be around 0%, and the fourth quarter will rise slightly above that.

▲Has the Bank of Korea ever released forecast figures by scenario? What does it mean that lockdown measures are gradually eased?

=This is the first time we have released growth rate forecasts by scenario. The optimistic scenario assumes that lockdown measures are eased faster than the baseline scenario. The pessimistic scenario assumes that the easing of lockdown measures is slower.

▲How much of the effect of the third supplementary budget (supplementary budget) was reflected in the growth forecast?

=Given the uncertainty regarding the scale, details, and timing of execution after the National Assembly's approval, it is very difficult to quantify the effect and reflect it in the growth rate. Although there has been much discussion about the third supplementary budget, nothing has been finalized, so it was not specifically reflected.