S. Korea raises economic growth forecast to 4.2%

The government's forecast is higher than the projections of the International Monetary Fund (3.6%) or the Bank of Korea (4.0%)

(Clip Art Korea)

The South Korean government has sharply raised its forecast for this year’s economic growth rate to 4.2%. The government believes that the economic rebound is accelerating because of signs of booming exports and hopes for a recovery in spending driven by expansionary fiscal policy and the expanded COVID-19 vaccination program. Seoul predicts the economic recovery will continue into next year, fueling 3% growth in 2022.

In an economic policy paper for the second half of 2021 published on Monday, the South Korean government predicted that the country’s real gross domestic product for the year would grow by 4.2%.

Seoul raised its projected growth rate from December 2020 (3.2%) by 1 point based on an analysis that key economic indicators — including private consumption, exports, and employment — will improve more than initially expected.

While that’s higher than the projections of the International Monetary Fund (3.6%), the Bank of Korea (4.0%), and the Korea Institute for Industrial Economics and Trade (4.0%), it’s lower than those of the Korea Capital Market Institute (4.3%) and JP Morgan (4.6%).

If the Korean economy grows at the government’s projected pace, it would be the first time the growth rate surpasses 4% in 11 years, since 2010 (6.8%).

With that in mind, Seoul has decided to focus economic policy in the second half of the year on stimulating domestic demand and supporting vulnerable groups. While exports and manufacturing drove the economic recovery in the first half of the year, the government means to lay the framework for a “complete economic recovery” in the second half through fiscal stimulus and addressing disparities.

More specifically, the government seeks to pass a second supplemental budget to provide disaster relief payouts, cashback rewards for credit card usage, and assistance for vulnerable groups.

The government will provide more details about who would be eligible for the payouts and what the amount would be in the second supplemental budget, which is scheduled to come out this week.

Seoul will also issue more spending coupons and vouchers in culture, art, performance, sports, and dining as a way to support sectors that have been hard hit by the COVID-19 pandemic.

In particular, the credit card cashback scheme, which the government has identified as a key program for the second half of the year, is expected to receive 1 trillion won (US$884.85 million) in the second supplemental budget.

“[In the second half of the year,] we have to definitely revive the service sector and domestic economy, which have a big impact on creating jobs,” said South Korean President Moon Jae-in in an expanded meeting of economic ministers on Monday.

“I’d like you to push ahead with sweeping plans to stimulate the domestic market through a supplemental budget, along with previously planned programs including the spending coupons and Korea Sale Festa, while keeping track of our efforts to contain COVID-19.”

By Lee Ji-hye, staff reporter

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