[Q&A] Bank of Korea: "Per Capita GNI Surpassing Italy? Currently Unknown"

'2020 4th Quarter and Annual National Income Briefing'
Growth Driven by Exports Continues... Annual Growth Rate -1.0%, Same as Preliminary Figure

[Image source=Yonhap News]

[Asia Economy Reporters Eunbyul Kim, Sehee Jang] The Bank of Korea stated regarding the comparison of per capita Gross National Income (GNI) between South Korea and Italy that "since Italy's figures are announced based on the Euro, it is difficult to directly compare them with South Korea's per capita GNI."

Shin Seung-cheol, Director of the Bank of Korea's National Accounts Department, said at the '2020 Q4 and Annual National Income (Provisional) Briefing' held at the Bank of Korea headquarters in Seoul on the 4th, "Per capita GNI announced in the local currency can apply various exchange rates, making comparisons difficult."

Italy's per capita GNI announced on March 1 was 27,839.8 Euros. Since there is no official aggregation based on the US dollar, the Bank of Korea explained that the per capita GNI figure in US dollars can vary depending on the exchange rate applied.

The Bank of Korea announced that the per capita GNI was $31,755, a 1.1% decrease compared to the previous year. In 2019, per capita GNI recorded $32,115, down 4.3%. This is the first time since the financial crisis in 2008 and 2009 that per capita GNI has decreased for two consecutive years.

Below is a Q&A with Director Shin.

▲ Per capita GNI has decreased for two consecutive years. Are there any factors other than COVID-19?

= There have been two previous instances of consecutive declines in national income: during the Asian financial crisis in 1997 and 1998, and during the global financial crisis in 2008 and 2009. Both were crisis periods with sharp exchange rate increases. Per capita GNI in dollar terms is influenced by real GDP growth rate, GDP deflator, and the won-dollar exchange rate. Although the GDP deflator, a price factor, rose by 1.3%, having a positive effect, real GDP contracted and the exchange rate increased by 1.2%, resulting in an overall 1.1% decrease compared to the previous year.

▲ Can we say that South Korea's per capita GNI has surpassed Italy's?

= Italy announced a 7% decrease compared to the previous year based on the Euro. Since South Korea's figures are based on the US dollar, direct comparison is difficult. International comparisons require applying the same exchange rate. Usually, international organizations such as the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), and the World Bank (WB) conduct such comparisons. These organizations are expected to release inter-country per capita national income figures soon. At that time, it will be clear whether South Korea has surpassed Italy. However, Italy's strong lockdown measures and the impact on tourism inflows are reflected in the numbers.

▲ What caused the decrease in goods and consumption in Q4?

= Due to COVID-19 and the resulting reduction in outings, consumption of semi-durable goods such as medical supplies and footwear decreased. Non-durable goods like food and beverages also declined compared to the previous quarter due to base effects, and durable goods consumption decreased as the individual consumption tax cut was reduced in the second half of the year. Overall, the decrease in goods consumption in Q4 is attributed to declines in both durable and semi-durable goods consumption.

▲ Why was last year's Q4 growth rate revised upward?

= Additional data such as industrial activity trends and retail sales performance, which were not available during the preliminary report, were incorporated, leading to some revisions. Customs clearance data shows strong growth in January and February, and the global semiconductor market is recovering. The trend of exports leading growth is expected to continue.

▲ Can we say that the impact of COVID-19 is greater than that of the Asian financial crisis? What are the differences from past crises?

= The South Korean economy recorded negative growth only twice: during the second oil shock in 1980 and the Asian financial crisis in 1998. During the global financial crisis in 2008, growth remained slightly positive at 0.1%. In the COVID-19 situation, growth was 2.0% in 2019, -1.0% in 2020, and is expected to return to 3.0% growth this year. Numerically, the decline in growth rate is not larger than in past crises. The causes of the crises and the responses and behaviors of economic agents differ, so the shock from the pandemic presents new challenges. It remains to be seen whether a rebound can occur within a year. It is too early to make a definitive judgment.

▲ Can the positive turn in the GDP deflator be interpreted as a sign of economic recovery?

= The GDP deflator turned positive with a 1.3% increase. Although the domestic deflator growth rate has slowed, the prices of imported goods have fallen significantly due to sharp declines in crude oil and raw material prices. Ultimately, this can have a positive effect by reducing production costs for companies. If national income increases, it can positively influence domestic demand such as consumption and investment.