[Yoon Administration Economy] This Year's Growth Rate Forecast at 2.6% and Inflation at 4.7%...Significant Revision

[Asia Economy Sejong=Reporter Kim Hyewon] The government forecasted that this year, our economy will grow by only 2.6% due to worsening external conditions. On the other hand, inflation is expected to record a 4.7% increase as international raw material prices rise and demand recovers simultaneously. The government adjusted its projections significantly within just six months, lowering the economic growth rate from 3.1% to 2.6% and raising the inflation rate from 2.2% to 4.7%.

In the new government's economic policy direction announced on the 16th, the real gross domestic product (GDP) growth rate for this year was presented as 2.6%, and the consumer price inflation rate as 4.7%. Compared to the projections released on December 20th last year, the economic growth rate was lowered by 0.5 percentage points, while the inflation rate was raised by 2.5 percentage points.

Thus, the government has effectively accepted a growth rate in the 2% range and inflation in the 4% range for this year. The government's economic growth forecast is lower than those of the Organization for Economic Cooperation and Development (OECD, 2.7%), the Bank of Korea (2.7%), and the Korea Development Institute (KDI, 2.8%), but higher than that of the International Monetary Fund (IMF, 2.5%).

Notably, this is the first time in 11 years since 2011 that the government has forecasted inflation in the 4% range in its economic policy direction. The government's consumer price inflation forecast of 4.7% is higher than those of the Bank of Korea (4.5%), KDI (4.2%), and IMF (4.0%), but slightly lower than the OECD's (4.8%). Compared to other institutions, the government has taken a generally conservative stance on the domestic economic outlook. For next year, the economic growth rate and inflation forecasts are 2.5% and 3.0%, respectively.

Bang Gi-seon, First Vice Minister of Strategy and Finance, said in a pre-briefing, "Our economy is in a critical crisis phase with structural difficulties, rising inflation due to worsening external conditions, and economic slowdown," adding, "The situation will not be easy not only in the second half of this year but also next year."

Private consumption is expected to improve from the second quarter onward due to the lifting of quarantine measures and the effects of supplementary budgets, driving future growth. However, exports are expected to be adjusted due to worsening external conditions, and the pace of investment recovery is expected to be gradual, resulting in an annual growth rate of 2.6%, according to the government. Private consumption is forecasted to increase by 3.7% annually, while facility investment and construction investment are expected to decrease by 3% and 1.5%, respectively. Customs-based exports are projected to increase by 11%, imports by 18%, and the current account balance is expected to record a surplus of about $45 billion.

The government announced that it will pursue a bold shift in economic policy direction to overcome the current crisis phase and fundamentally improve the economic structure of our economy. Vice Minister Bang stated, "We aim to operate the economy under four major principles?freedom, fairness, innovation, and solidarity?with the goal of overcoming low growth and achieving a virtuous cycle of growth and welfare."

First, the plan is to shift the main agents of economic management from the government to the private sector, businesses, and the market, based on a free market economy. While guaranteeing freedom to the maximum extent, unfair practices will be strictly punished according to the law, and efforts will focus on ensuring fair opportunities across the economic and social spectrum. The strategy includes expanding the growth base through science, technology, and industrial innovation, implementing tailored welfare centered on vulnerable groups, and strengthening solidarity with the international community from the perspectives of national interest and practicality, including economic security.