The Bank of Korea: "The Recovery Speed of the Global Economy from the COVID Shock Has Slightly Slowed"

Bank of Korea 'Overseas Economic Focus'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] Although the global economy, which was impacted by the novel coronavirus infection (COVID-19), continues to show signs of improvement, the pace of recovery appears to be somewhat slowing down.

On the 22nd, the Bank of Korea analyzed the economic situations of the United States, the Euro area, Japan, China, and emerging countries in its 'Overseas Economic Focus,' noting that while each country is gradually recovering from the COVID-19 shock, uncertainties remain high.

In the case of the United States, the improvement trend is being maintained mainly through consumption. Although the number of COVID-19 cases surged recently in the U.S., retail sales increased for six consecutive months. Retail sales rose by 1.6% in September and 0.3% in October. The Bank of Korea assessed, "Going forward, uncertainties in the recovery path remain high due to the potential intensification of COVID-19 resurgence in winter, ongoing risks related to the U.S. presidential election, and deadlock in stimulus package negotiations."

In the Euro area, the resurgence of COVID-19 has weakened the improvement trend, with both production and consumption declining. Industrial production turned negative in September (from 0.6% in August to -0.4% in September), and retail sales also shifted from a 4.2% increase to a 2.0% decrease. The fact that Euro area countries are strengthening measures such as movement restrictions in response to the sharp rise in new COVID-19 cases is another negative factor. The movement restriction index for the Euro area (average of Germany, France, Italy, and Spain) rose from around 25.0 in August to 45.6 in November. This suggests a possible delay in the Euro area's economic recovery.

Japan's economy shows a weak improvement trend as consumption remains sluggish despite export improvements. Retail sales turned negative in September (from 4.6% in August to -0.1% in September), and service consumption recovery is also delayed. A Bank of Korea official noted, "Since October, with the expansion of government consumption promotion measures (GoTo Campaign), there are signs of some easing in consumption sluggishness, but the resurgence of COVID-19 could act as a constraint on a full recovery in consumption."

China's economy is showing a solid recovery in both domestic demand and exports, but there are concerns about deflation. The industrial production growth rate in October (+6.9%) exceeded last year's average (+5.8%), with retail sales and export growth expanding. However, JP Morgan pointed out that "the consumer price index growth rate sharply slowed in October," raising the possibility of deflation.

Among other emerging countries, the five ASEAN (Association of Southeast Asian Nations) countries are experiencing slow domestic demand recovery despite export improvements due to the continued spread of COVID-19. Brazil is showing signs of recovery centered on consumption, supported by the government's large-scale disaster relief payments.

Meanwhile, international oil prices (Dubai crude basis) have been fluctuating around the $40 level this month. Prices briefly dropped to the mid-$30 range due to the resurgence of COVID-19 and the normalization of Libyan oil production but recovered losses due to the possibility of production cuts extension and slow recovery in U.S. oil production. A Bank of Korea official stated, "Going forward, international oil prices are expected to continue fluctuating depending on the development of COVID-19, vaccine development status, and production volumes of major oil-producing countries."