BoK: "Global Economic Recovery Strengthened by US Vaccine Rollout Expansion and Fiscal Spending Effects"

Bank of Korea 'Overseas Economic Focus'

[Asia Economy Reporter Kim Eunbyeol] The Bank of Korea evaluated on the 16th that "the global economic recovery is strengthening, supported by the expansion of COVID-19 vaccinations and fiscal spending effects in the United States."

On the 16th, the Bank of Korea stated in the 'Overseas Economic Focus' report, "The U.S. economy continues to recover centered on consumption, and the Eurozone economy has resumed its recovery as the pace of vaccinations accelerated since March and global demand increased."

In March, U.S. personal consumption expenditures increased significantly due to $1,400 cash payments per person, smooth vaccine distribution, and additional reopening of economic activities. Personal consumption expenditures, which had decreased by 1.2% in February, rose by 3.6% in March. Although employment conditions slightly stalled last month, the recovery is expected to strengthen due to the expansionary fiscal policy stance of the Joe Biden administration and the reopening of economic activities.

The number of vaccinated people in the European Union (EU) increased significantly in April, rising from an average of 1.34 million per day in March to 2.4 million. In March, industrial production in major countries turned to an increase with Germany and France showing growth, and retail sales in the Eurozone also continued to rise by 2.7%. Regarding exports, Germany's exports increased by 1.2%, expanding the growth margin, and France's exports turned to a 2.6% increase.

The Japanese economy showed a temporary improvement during March and April, supported by the gradual lifting of the state of emergency. Industrial production in March turned to an increase due to a significant rise in automobile production, and household consumption and retail sales increased for two consecutive months. However, the Bank of Korea expects a weak improvement trend to continue for the time being due to the resurgence of COVID-19 and delays in vaccination.

In Japan, the number of new confirmed cases recently surged again, leading to the extension and expansion of the third state of emergency, mainly in the Tokyo and Osaka areas. The vaccination rate as of the 10th was about 2.8%, which is lower compared to South Korea (7.2%), the United States (45.7%), and the EU (28.4%).

The Chinese economy continues a solid growth trend with sustained export strength and recovery in the service sector. In April, exports increased significantly, centered on service integrated circuits and furniture, expanding the month-on-month growth margin, and the Purchasing Managers' Index (PMI) for services has consistently remained above the baseline. Meanwhile, inflation widened due to the impact of rising raw material prices, including sharp increases in oil, natural gas, and steel prices.

Emerging economies showed signs of a sluggish recovery. The five ASEAN (Association of Southeast Asian Nations) countries continued to see strong exports, but domestic demand remained weak due to COVID-19, resulting in a slow improvement trend.

India is expected to experience a temporary economic slowdown due to the resurgence of COVID-19. However, the Bank of Korea anticipates that the impact will not be as severe as last year, thanks to improved vaccine distribution in the second half of the year. Brazil's domestic recovery is sluggish despite export recovery, due to the continued spread of COVID-19 and a reduction in disaster relief payments.

In May, international oil prices (Dubai crude) rose to the mid-$60 range. This is due to faster-than-expected recovery in oil demand, driven by expanded U.S. fiscal spending and accelerated vaccination in major countries. The Bank of Korea stated, "International oil prices are likely to fluctuate repeatedly around the mid-$60 range rather than showing rapid one-directional changes for the time being."