[Economic Outlook] What Will the Second Half Economic Policy Direction Include... Focus on Supplementary Budget and Consumer Prices

President Moon convenes Emergency Economic Meeting... Finalizes Second Half Economic Policy Direction

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] This week, attention is drawn as the government is set to unveil its economic policy direction for the second half of the year aimed at overcoming the COVID-19 crisis, along with the details of the third supplementary budget (supplementary budget). It is also noteworthy whether the consumer price inflation rate for this month will record a negative figure, and whether the first quarter economic growth rate, which was -1.4% based on the preliminary estimate, will be adjusted in the provisional figures.

The government will disclose the economic policy direction for the second half of the year and the third supplementary budget this week. President Moon Jae-in is expected to convene the 6th Emergency Economic Meeting at the Blue House on the 1st of next month to finalize the economic policy direction for the second half of the year. It is anticipated to include measures to revitalize consumption and private investment, the Korean New Deal project, and corporate reshoring (return of overseas factories to Korea).

During the meeting, specific details related to the formulation of the third supplementary budget are also expected to be discussed, and the government will submit the third supplementary budget to the National Assembly after the Cabinet meeting following the conference.

The consumer price trend for May, to be announced by Statistics Korea on the 2nd of next month, is also important. Last April, the consumer price inflation rate dropped to 0.1%, marking the lowest in six months, and there is a growing possibility that the consumer price inflation rate for this month will record a negative figure.

The consumer price inflation rate had remained below 1% for 12 consecutive months last year, then rose to the 1% range from January to March this year, but has fallen back to the 0% range. The biggest factor in this month’s consumer price inflation rate is believed to be the sharp drop in international oil prices, as oil prices are reflected with a lag of 2 to 3 months. The economic shock caused by the COVID-19 crisis is also influencing the decline in prices.

If prices continue to fall sharply, there is concern among experts about falling into deflation (a vicious cycle caused by price declines during economic recession). The Bank of Korea’s additional cut of the base interest rate from 0.75% to 0.50% last week appears to reflect warnings not only about the sharp decline in economic growth but also about deflation caused by falling prices. The Bank of Korea forecasts this year’s growth rate at -0.2% and the consumer price inflation rate at 0.3%.

[Image source=Yonhap News]

Meanwhile, the Bank of Korea will also announce the provisional national income statistics for the first quarter on the same day. Previously, the preliminary real GDP growth rate for the first quarter announced by the Bank of Korea on the 23rd of last month was -1.4%, but there is interest as the provisional figure to be presented this time may be even lower.

In addition, the Bank of Korea will announce the provisional nominal GDP growth rate for the first quarter and release the provisional national accounts for 2019. In the annual national income statistics for 2019 announced by the Bank of Korea in March, last year’s real GDP growth rate was 2%, but a slight adjustment is expected.

The per capita GNI (Gross National Income) for last year, which was announced as $32,047 in March, is also expected to be revised with new figures. Changes in last year’s household disposable income and labor income distribution rate are also points of interest.