Virus fear may drive down 2021 GDP growth: Bank of Korea governor

Bank of Korea Governor Lee Ju-yeol speaks during an online year-end press conference at its headquarters in Seoul, Thursday. Courtesy of Bank of Korea

By Lee Min-hyung

The third wave of coronavirus restrictions will pose a serious downward pressure on the nation's GDP growth in 2021, as the rapid rise of new infections is expected to drastically curb face-to-face spending next year, Bank of Korea (BOK) Governor Lee Ju-yeol said Thursday.

“The nation's social distancing measures have recently been toughened, and this is a signal that spending will likely show a sluggish trend next year,” Lee told reporters during a year-end press conference.

The remark reflects on reviving fears of the nationwide COVID-19 spread here from November. With the number of new coronavirus cases showing a rapid jump, the government raised the anti-virus social distancing level to 2.5 in early December, the second-highest out of the five-tier system.

Last month, the central bank revised up the 2021 growth forecast to 3 percent from 2.8 percent.

But with the virus spread showing little sign of subsiding, critics argued the BOK forecast remains “too optimistic.”

The BOK chief said it still has to take a wait-and-see approach as to revising down the figure, as a series of economic indices ― such as exports ― are on a gradual track for recovery despite the lingering virus-related uncertainties across the globe.

Lee also did not rule out the possibility of the economy's faster-than-expected rebound on hopes for the development of vaccines.

“If the COVID-19 spread is rapidly curbed due to the vaccine supply, expectations remain in place that the export recovery will get better next year from the previous outlook,” he said.

The governor, however, underlined that the nation's possible economic rebound next year will be determined by how serious the virus spread is next year.

Given the ongoing global economic uncertainties, the BOK also reaffirmed its willingness to continue monetary easing for the time being.

“Bringing the economy on the path for recovery in a timely manner should be a top priority for us, and to do so, the BOK have no choice but to maintain monetary easing,” he said.

The BOK chief also shared the BOK's outlook on the inflation rate.

Last month, the central bank forecast the rate of inflation to reach 0.5 percent this year, with that of next year being around 1 percent.

“This year's inflation rate increased by a mere 0.5 percent from a year ago, and fell far short of our earlier target of 2 percent,” Lee said. He attributed the decline to the virus-induced international oil price fall.

But the inflation rate will be on the rise in 2021 when the global economy is expected to achieve gradual recovery, even if uncertainties remain in place over the pandemic shock, according to Lee.

“The international oil prices are generally expected to rise next year,” he said. “On top of that, the government will unlikely take policies that pose a massive downward pressure on prices here.”

The BOK governor also kept a careful position as to whether the central bank will expand its role into non-monetary areas ― such as employment. The National Assembly is discussing a revision to a Bank of Korea Act, as a way for the central bank to expand its role into employment stabilization here.

“We are aware of the purpose of the revision, but the decision should be made after thorough discussion, as this may end up weakening the credibility of the central bank,” he said.

This is because it is very tough for the central bank to achieve the employment stabilization by revising key interest rates, while at the same time fulfilling its primary role to stabilize prices and financial markets here, according to the governor.