[Economic Outlook] Bank of Korea Announces Q4 and Annual GDP for Last Year... Assessing the Impact of the Third COVID-19 Shock

[Asia Economy Reporter Kim Eun-byeol] This week, various economic indicators such as the Q4 and annual economic growth rates for last year and the December industrial activity trends statistics will be released. It is expected to provide an estimate of how much the South Korean economy was impacted by the third wave of COVID-19 and the intensified social distancing measures since November last year.

The Bank of Korea will release the preliminary figures for the "Q4 2020 and annual real Gross Domestic Product (GDP)" on the 26th. Previously, the Q3 real GDP growth rate (compared to the previous quarter) was 2.1%, marking a rebound from the negative growth trends of Q1 (-1.3%) and Q2 (-3.2%).

The Bank of Korea expects that if the Q4 growth rate is around 0.4 to 0.8%, the annual GDP growth rate for last year could reach the forecasted -1.1%.

In Q4, both positive and negative factors coexisted in the Korean economy. Exports showed a positive trend as global trade conditions improved and the semiconductor industry recovered. Centered on semiconductors, South Korea's key industry, exports increased, leading the current account balance to maintain a surplus for seven consecutive months, and the annual current account surplus is expected to exceed the forecast of $65 billion.

On the other hand, domestic demand was hit due to the third wave of COVID-19 and the escalation of social distancing levels. With face-to-face consumption sharply declining, the extent to which non-face-to-face consumption such as online shopping held up will be crucial. Earlier, Bank of Korea Governor Lee Ju-yeol, after holding the first Monetary Policy Board meeting of the new year and keeping the base interest rate at 0.5%, explained that "the economic shock from the third wave of COVID-19 will be greater than the previous two waves."

The Bank of Korea will consecutively release the January Consumer Sentiment Survey results and the Business Survey Index (BSI) on the 27th and 28th. In the December survey, due to the impact of the third wave of COVID-19, the Consumer Confidence Index (CCSI) fell for the first time in three months, and the BSI dropped by 3 points compared to November. With the recent decrease in confirmed cases, consumer and business sentiment is expected to have somewhat improved.

Statistics Korea will announce the "December 2020 and annual industrial activity trends" on the 29th. The industrial activity trends are the most comprehensive coincident indicators to diagnose South Korea's real economy. Since social distancing levels were raised to the highest level in December, it is expected that the domestic demand sector, especially face-to-face services, suffered significant damage. The annual indicators for last year are also of interest.

Additionally, the Public Institution Management Committee will finalize the designation of public institutions this year, with particular attention on whether the Financial Supervisory Service (FSS) will be designated as a public institution. The Financial Services Commission (FSC), the supervisory body over the FSS, has already conveyed to the Ministry of Economy and Finance its opposition to the designation, stating that the FSS is already controlled at a level equivalent to a public institution.