Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Korea to leave 4% GDP growth rate unchanged
Bank of Korea Governor Lee Ju-yeol speaks during a press conference at its headquarters in Seoul, July 15. Yonhap
By Lee Min-hyung
Bank of Korea set to raise key rate on Aug. 26
By Lee Min-hyung
While the continued spread of the Delta variant of COVID-19 is apparently impacting the recovery prospects of the South Korean economy, it's very unlikely the central bank will revise down this year's GDP growth forecast for Asia's fourth-largest economy, analysts and economists said, Sunday.
Behind such expectation is that despite growing internal and external uncertainties, the country's exports are looking solid. Plus, the country's continued expansionary fiscal expenditure is expected to widely offset looming economic risks amid the continued stringent COVID-19 containment measures.
“The local economy could be able to achieve 4 percent growth in 2021,” Hana Financial Investment economist Chun Kyu-yeon said. “The recent surge in the daily coronavirus infection cases here came as a downward pressure on private consumption, but the government's active set of expansionary policies will offset possible risks over the virus-induced economic slump.”
The Bank of Korea (BOK) is expected to leave its GDP growth forecast of 4 percent unchanged during the upcoming monetary policy meeting. Rapid spread of the Delta strain is putting some pressure, with economists debating over the justification of the BOK's rate hike expected later this month. BOK Governor Lee Ju-yeol recently projected the economy to achieve 4 percent growth this year.
The Korean economy proved its resilience in the first half of 2021 driven by increased exports of semiconductors and steel products. In July, exports reached $55.44 billion (65 trillion won), up 29.6 percent from the previous year. This was the largest monthly output since Korea compiled data in 1956.
“Korea's annual exports this year will set a new record high, as the so-called export super-cycle will remain in place in the latter half of this year,” Hi Investment & Securities analyst Park Sang-hyun said.
“While economic activities in South Korea could be affected by more business difficulties due to the spread of the Delta variant, the global economy will likely expand this year, as was commented by U.S. Federal Reserve Chairman Jerome Powell who hinted that the resurgence of the pandemic will have a limited impact on the U.S. economy,” he said, stressing the risks on the virus spread aren't serious enough to damage the export super-cycle.
Despite tardy COVID-19 vaccine rollout adding to some headwinds, the BOK chief said the government's quarantine measures will take effect gradually.
Additionally, the BOK is expected to inch up the target inflation rate to around 2 percent from 1.8 percent due to the rising consumer price index. According to Statistics Korea, the consumer price index in July increased by 2.6 percent from the previous year.
“The inflationary pressure will be stronger than expected,” a member of the BOK's monetary board said. The growing inflationary concern is also pushing the BOK to normalize its monetary easing policy as scheduled and planned.
A consensus is that the central bank will raise the benchmark rate by 25 basis points during the August meeting. The BOK has frozen the rate at 0.5 percent since May 2020. The possible rate hike is also part of a measure by the BOK to minimize shocks from widening financial imbalance here due to soaring asset prices and increasing household debts due to prolonged low interest rates.