Woori Financial Research Institute Revises Growth Forecast to -1.5% This Year
Experts Say "No External Demand to Offset Domestic Slump... Recovery to Pre-COVID Growth Trend Difficult"
"Surging Government and Corporate Debt in Crisis Phase Also Limits Economic Recovery"
[Sejong=Asia Economy Reporters Kim Hyunjung and Kim Eunbyul] There is a growing consensus that a sharp 'V-shaped' economic recovery is unlikely for our economy next year. Domestic private economic research institutes and government-funded institutions predict a contraction this year followed by a moderate recovery next year, agreeing that a dramatic rebound is unlikely. Although the government is taking early measures to overcome COVID-19 by preparing the fourth supplementary budget (supplementary budget) in 59 years, there are limits to improving the growth rate unless global export conditions improve, and the recent surge in government and corporate debt could also pose a drag.
According to a compilation of forecasts from domestic private and government research institutions on the 10th, South Korea's economic growth rate (GDP) is expected to record a contraction of -1.5% to -0.5% this year, followed by a moderate recovery of around 2-3% next year. The day before, Woori Financial Management Research Institute presented the lowest growth forecast among private research institutes at -1.5% for this year. This is a downward revision of 0.8 percentage points from the previous forecast (-0.7%). The institute stated, "Due to the resurgence of COVID-19 since August, the recovery of private consumption has been delayed, causing the third-quarter GDP growth rate to fall to 1.0%, lower than the previous estimate (2.5%). Retail sales in July also plummeted due to reduced policy effects and the monsoon season, and consumption is expected to remain sluggish in August and September due to strengthened quarantine measures following an increase in COVID-19 cases."
The institute projected a 3% growth rate for next year. It also conducted an online roundtable with experts including Kim Jun-il, IMF advisor; Kim Hyun-wook, professor at KDI School of Public Policy and Management; Shin Kwan-ho, professor at Korea University; and Lee Chan-woo, member of the Gyeongnam Economic Innovation Promotion Committee. The experts clearly pointed out that the current crisis triggered by COVID-19 is fundamentally different from past crisis recovery cases and mentioned limits to the speed of recovery. Unlike the 1997 Asian financial crisis triggered in emerging markets or the 2008 financial crisis that began in advanced countries, this time there is no solid external demand where emerging and advanced countries complement each other. In particular, participants observed, "Since the global economy has contracted simultaneously, it is difficult to expect exports through exchange rate adjustments or relative external demand," and "economic growth rates will find it hard to return to pre-COVID-19 trends." They also explained, "Because government and corporate debt have increased significantly during this crisis phase, it will act as a structural factor limiting the speed of economic recovery going forward."
Earlier, the Korea Development Institute (KDI), a government-funded research institution under the Ministry of Strategy and Finance, also lowered its growth forecasts for this year and next year from 0.2% and 3.9% to -1.1% and 3.5%, respectively. The Bank of Korea also projected -1.3% for this year and anticipated a 2.8% recovery next year. Jung Kyu-chul, head of KDI's Economic Outlook Office, said, "Since the spread of COVID-19 is not subsiding, exports and consumption are sluggish, and it will take considerable time for the economy to recover." The Bank of Korea also cited delayed recovery in private consumption due to the resurgence of COVID-19 as a reason. Additionally, LG Economic Research Institute presented growth rates of -1.0% for this year and 2.5% for next year in early last month, while Hyundai Research Institute forecasted a -0.5% growth rate for this year at the end of last month. Hyundai Research Institute particularly sees a high possibility of a W-shaped double-dip recession rather than a V-shaped or U-shaped economic rebound.
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