[Q&A] Bank of Korea: "Even with additional government public jobs, this year's employment increase drops from 130,000 to 80,000"

Bank of Korea February Economic Outlook Press Briefing

[Asia Economy Reporter Kim Eunbyeol] The Bank of Korea (BOK) forecasted that the number of employed persons will increase by 80,000 this year, and the unemployment rate will record 4.0%. Last year, the BOK expected the number of employed persons to increase by 130,000 this year, but it reduced the expected increase by 50,000 compared to the initial forecast. The number of employed persons is projected to increase by 180,000 next year, also 30,000 less than last year's forecast.

On the 25th, Kim Woong, Director of the BOK's Research Department, stated at the 'February Economic Outlook Press Briefing,' "The decrease of about 1 million employed persons at the beginning of the year due to social distancing measures was reflected in the data."

Director Kim said, "The employment situation will remain sluggish for the time being, mainly in face-to-face service industries, but demand for face-to-face services is expected to ease in the second half of the year, leading to a gradual recovery. Employment in the manufacturing sector is expected to turn to an increase as business conditions improve, especially in the IT sector, whereas employment in the service sector will show a significant decline in face-to-face services for the time being." However, he added that employment is expected to gradually increase in the mid to late part of this year as the spread of infectious diseases subsides and government employment support policies take effect.

Meanwhile, the BOK projected that this year's real Gross Domestic Product (GDP) will grow by 3% compared to last year. This is the same as the previous forecast announced on November 26 last year, and the growth rate for next year remains at 2.5%. Initially, many economic experts expected the BOK to slightly revise the growth rate upward by about 0.1 percentage points, reflecting recent export improvements. Although exports were revised upward, the private consumption growth rate is expected to fall by 1.1 percentage points from the previous 3.1%, so the growth rate forecast was maintained. The BOK raised this year's consumer price inflation forecast from 1.0% to 1.3%, reflecting economic recovery, recent rises in international oil, raw materials, and grain prices, as well as strong rental prices.

Below is a Q&A with Director Kim and BOK Deputy Governor Lee Hwansuk.

- You lowered the employment forecast to 80,000. Does this reflect the government's plan to create more than 900,000 direct jobs by the first quarter?

▲ We included additional public jobs planned by the government in the calculation. The main reason for lowering the employment forecast to 80,000 is that the actual figures reflected a decrease of about 1 million employed persons at the beginning of the year due to social distancing measures.

- You raised the global economic growth rate and terms of trade forecasts but maintained the domestic growth forecast. Does this mean that the domestic economic growth momentum is weaker compared to the global economy?

▲ The global economic growth rate was revised upward from the previous forecast of 4.8% to 5.0%. External conditions are positive, but domestic consumption remains sluggish due to social distancing and other factors. Last month's employment figures showed a decrease of about 1 million compared to the same period last year, which significantly constrained income and other factors. This is why, despite the upward revision of global economic growth, we maintained our growth forecast. The reason for the smaller rebound in Korea's growth rate is that last year's contraction was only -1.0%, smaller than other countries. Other countries experienced larger declines last year, so they benefit more from the base effect. In terms of actual levels, our growth content is better. Only consumption is sluggish, but exports are driven by the competitiveness of leading companies, and facility investment is also a positive signal.

- What is the reason for revising the inflation rate upward?

▲ There are two main reasons: one is the rise in prices of agricultural products and food due to adverse weather conditions and avian influenza (AI), and the other is the rebound in international oil prices. The downward revision of next year's inflation forecast from 1.5% to 1.4% is due to the base effect. If prices rise significantly this year, the increase next year will be smaller, which is technically reflected.

- You assumed the crude oil import price to be in the mid-$50 range. Isn't this too low, considering Dubai crude is in the $60 range?

▲ When setting the international oil price assumption, we consider forecasts from specialized international oil price agencies. The current average annual international oil price forecast from these agencies is in the mid-$50 range. Qualitatively, we reflected the recent short-term sharp rise in oil prices. Since prices surged sharply after November, we took that into account. While some of the price increase is due to demand factors from a strong global economy, there are also supply-side factors such as production cuts by Saudi Arabia and other oil-producing countries, which could reverse at any time.

- Why was the pessimistic COVID-19 scenario growth rate revised upward from 2.2% to 2.4%?

▲ One of the changes since the last forecast is the full-scale rollout of vaccinations. This has reduced downside risks compared to the previous forecast. Also, the supplementary budget is underway and under discussion, which helps reduce downside risks.

- What is the economic outlook if the 4th disaster relief fund is reflected?

▲ To provide a growth rate reflecting the supplementary budget, we need to know the scale, target recipients, and expenditure details. Since only the scale has been confirmed recently, it is difficult to specify an amount. However, the scale has increased compared to the 2nd and 3rd rounds, and the approach seems to be selective support, so I can say the growth-enhancing effect is expected to be greater.