Foreign institutions revise up growth outlook for Korea in 2021 after Q4 GDP data

[Graphics by Song Ji-yoon]

Foreign institutions have revised up growth outlook for South Korea after fourth-quarter gross domestic product (GDP) data suggest the country is on path for mild recovery led by external demand.

The International Monetary Fund (IMF) on Tuesday adjusted up its growth outlook for the South Korean economy this year to 3.1 percent from its October estimate of 2.9 percent, reflecting the country’s relative success in handling the pandemic.

Asia Development Bank also forecast 3.3 percent growth for the Korean economy, while the Organization for Economic Cooperation and Development expected growth of 2.8 percent.

The IMF forecast the Korean economy to expand 2.9 percent in 2022. Its growth estimates for 2020 were revised up to 1.1 percent contraction, up 0.8 percentage point from the previous forecast. This was the highest among the 11 developed economies. The Korean economy’s average growth rate from 2020 to 2021 was predicted to be 2.0 percent, also the highest among the 11 advanced economies.

According to preliminary data from the Bank of Korea (BOK), Korea’s real gross domestic product grew 1.1 percent in the fourth quarter versus the previous quarter but shrank 1.0 percent on an annual basis, its first contraction in 22 years since the Asian Financial Crisis.

Other major global investment banks and research institutes have also given an upbeat outlook for Korea this year.

Among the six investment banks and one research institute that released economic outlook reports, three revised up their forecast for Korea’s GDP this year by 0.1 to 0.3 percentage point, the Korea Center for International Finance (KCIF) said Wednesday.

This reflected the BOK’s positive fourth-quarter GDP results, the KCIF said.

In December 2020, nine foreign investment banks, including Barclays, Bank of America Merrill Lynch, Citi, Credit Suisse, Goldman Sachs, JPMorgan, HSBC, Nomura and UBS, projected Korea’s real GDP this year to grow an average 3.4 percent, up 0.1 percentage point from their projection average a month earlier.

Bank of America said Korea fared relatively well against the global economy that fell into a deep recession after the pandemic hit.

While the institutions expected Korea to show solid growth in exports and investment, they were skeptical of recovery in private demand.

The latest virus spread is gradually stabilizing, and people are showing signs of adapting to the new normal. But more people are facing layoffs and a tough job market, which could make them reluctant to open up their wallets.

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