The Bank of Korea says "Significant increase in private consumption with With-Corona"... Raises next year's inflation forecast to 2.0%

Private Consumption Growth Rate Forecasted at 3.6%
Positive Employment Outlook... Expected Increase from 200,000 to 350,000

[Asia Economy Reporter Jang Sehee] The Bank of Korea maintained its forecast for this year's real Gross Domestic Product (GDP) growth rate at 4.0%. It anticipated a significant increase in private consumption due to the implementation of With Corona (gradual return to normal life). However, it expected the consumer price inflation rate to remain above 2% for a considerable period.

In the revised economic outlook announced on the 25th, the Bank of Korea presented this year's real GDP growth rate (compared to last year) at 4.0%, the same as the forecast in August. The economic growth rate for next year also remained unchanged at the initial forecast of 3.0%.

It expected exports to continue to perform well and private consumption to grow significantly. The Bank of Korea raised its forecast for this year's private consumption growth rate from 2.8% to 3.5%, an increase of 0.7 percentage points. The private consumption growth rate for next year was also revised upward from 3.4% to 3.6%, a 0.2 percentage point increase.

Since private consumption depends on the level of quarantine measures, it is judged that consumption will recover to some extent once COVID-19 subsides.

On the other hand, this year's facility investment growth rate was lowered from 8.8% to 8.2%. The construction investment outlook turned negative, dropping from 0.9% to -0.7%.

The growth rates for goods exports this year and next year were lowered compared to August's forecasts (8.5% and 2.6% versus 8.9% and 2.7%, respectively).

Conversely, goods imports were revised upward from 9.5% to 10.1% this year and from 3.0% to 3.1% next year, reflecting the impact of rising oil and raw material prices.

The employment outlook was positive. The forecast for job creation was increased by 150,000, from 200,000 to 350,000 this month. The unemployment rate forecast was lowered from 3.9% to 3.7%. The unemployment rate forecast for next year was also slightly revised down from 3.8% to 3.6%.

The inflation outlook also changed significantly. As expected, the annual consumer price inflation forecast for this year rose by 0.2 percentage points, from 2.1% to 2.3%.

Future inflationary pressure remains high. The 'expected inflation rate' (2.7%), which corresponds to the consumer price inflation rate forecast for the next year in the November Consumer Sentiment Survey, increased by 0.3 percentage points compared to October.

This increase (0.3 percentage points) is the largest in 4 years and 10 months since January 2017 (0.3 percentage points). Accordingly, the Bank of Korea raised its consumer price inflation forecast for next year from 1.5% to 2.0%, an increase of 0.5 percentage points.

By half-year, consumer prices are expected to rise by 2.3% in the first half of next year, then the inflation rate is expected to decrease to 1.8% in the second half.