Government Expects Economic Recovery with 'With Corona' Transition... "Possibility of Improving Domestic Demand Conditions"

Global Inflation and Supply Chain Disruptions Maintain External Uncertainties

[Sejong=Asia Economy Reporter Son Seon-hee] The government recently assessed on the 12th that the domestic economic conditions show a 'gradual possibility of improvement' as the quarantine system transitions to phased daily recovery (With Corona). Until last month, it analyzed that 'uncertainty persists' for three consecutive months due to the impact of the 4th wave of COVID-19, but this month it expressed expectations for entering a recovery phase in the economy.

Last month's domestic card approval amount, which indicates consumption flow, also increased by 13.4% compared to the same month a year ago. Not only has it increased for nine consecutive months, but the rate of increase has expanded for two consecutive months recently.

However, externally, it added that uncertainty remains, citing global inflation due to rising raw material prices, monetary policy shifts in major countries such as the United States, and the expansion of global supply chain disruptions as major external risks.

The Ministry of Economy and Finance published the 'Recent Economic Trends November Issue' on the same day, stating, "Recently, our economy is showing continuous export and employment improvements, and with the transition of the quarantine system, domestic demand conditions such as face-to-face service industries are gradually showing possibilities of improvement."

Kim Young-hoon, head of the Economic Analysis Division at the Ministry of Economy and Finance, said, "Overall, domestic demand conditions are improving, but uncertainty is shifting from domestic to external parts," adding, "Major countries are showing growth trends, but the growth rate is slowing, and rising raw material prices and supply chain disruptions are increasing inflationary pressures, causing more risk factors to emerge than initially feared."

Regarding global supply chain disruptions, he analyzed, "The fundamental cause is short-term supply and demand mismatches," explaining, "During the COVID-19 situation, service consumption decreased, and consumption shifted to 'goods,' but supply could not keep up with the rapidly increased demand, causing various problems." He added, "In addition, labor supply and labor mobility have been hindered due to COVID-19, and policy factors such as low carbon are also having an impact."

The Korea Development Institute (KDI) forecasted an annual inflation rate of 2.3% for this year in its economic outlook for the second half of the year released the day before. Inflation shocks are becoming visible mainly in major countries such as the United States, and the high level of international oil prices is expected to continue next year. Regarding this, Kim said, "It is true that upward pressure on prices has been high since the second half of the year," but added, "However, the base effect from last year's reduction in communication fees has disappeared, and agricultural product prices are stabilizing, which are downward factors." He continued, "International oil prices will still act as upward pressure, but (domestically) the fuel tax reduction policy has been applied, and if this is fully reflected, it is expected to lower prices by 0.33 percentage points." However, he added that there may be some time lag before this price reduction effect appears.