"The Biggest Variable in Global Economic Recovery is the COVID-19 Vaccine"

Economic Growth Rate Changes Based on COVID-19 Vaccination Speed and Quarantine Efficiency
Economic Scale Expected to Recover to Pre-COVID-19 Levels by Late First Half

Kim Jaechil, Head of Macroeconomic Finance at the Korea Capital Market Institute (Source: Screenshot from Korea Capital Market Institute YouTube)

[Asia Economy Reporter Minwoo Lee] An analysis has emerged that the biggest variable in the global economic recovery is the novel coronavirus disease (COVID-19) vaccine. Although economies around the world are rebounding, there are concerns that various policy effects could be shaken depending on the speed of vaccine rollout and vaccine side effects.

On the 28th, Jaechil Kim, Head of the Macro-Finance Department at the Korea Capital Market Institute, explained at the '2021 Capital Market Outlook and Key Issues' seminar held online by the Korea Capital Market Institute, "Since the news of the successful development of the COVID-19 vaccine was announced in December last year, international financial centers and various global institutions have revised upward their economic forecasts for this year," adding, "This shows how important the spread and effectiveness of vaccine administration and the resulting side effects are."

First, he generally predicted that the economies of major countries worldwide will grow this year. Kim said, "With economic activities fully resuming in the second half of this year, major countries such as the United States (4.3%), China (8.0%), and South Korea (3.3%) will show high levels of economic growth," and forecasted, "Long-term interest rates, which fell sharply in the first half of last year, will rise within a limited range this year." He added, "Most countries will maintain expansionary macroeconomic policies this year," elaborating, "Monetary policy will keep low benchmark interest rates and quantitative easing (QE) policies, while continuing an expansionary fiscal policy stance."

However, he expressed concerns that there are still many variables before entering a full-fledged economic expansion phase. In particular, he pointed to the COVID-19 vaccine. The speed of vaccine administration by country, infection prevention effectiveness, and distribution efficiency are analyzed as the most influential variables.

He also emphasized the need to pay attention to changes in consumer sentiment among households that had reduced consumption and increased savings. If consumption increases more than expected, economic growth rates are likely to be higher than anticipated. The vulnerable employment situation caused by COVID-19 was also cited as a variable. Kim explained, "The business foundations of small and medium-sized enterprises and self-employed individuals with weak financial power have been damaged by COVID-19," adding, "If their effective labor force is not absorbed, it will affect the medium- to long-term growth potential."

Additionally, he pointed out that financial markets, which react sensitively to news of liquidity supply increases or decreases, and the external debt crises of some emerging countries with accumulated fiscal deficits, are also points to watch.

Against this backdrop, Kim predicted that while the economic growth rates of major countries will rebound this year, the scale will only recover to the pre-COVID-19 pandemic level by the end of the first half. He analyzed that it will take longer to restore the economy to the pre-pandemic scale. He said, "The vaccine distribution status by country will be a decisive variable," and added, "The fiscal capacity of each country will also be a variable determining the growth paths of individual countries and the global growth trajectory."