OECD ups projection of S. Korean economic growth to 4%

In a report published on Wednesday, the OECD predicted South Korea's economy would grow by 4% in 2021 while downgrading its previous growth forecasts for the G20, the US, and Japan

The Organisation for Economic Co-operation and Development (OECD) projects that South Korea’s economy will grow by 4.0% this year. OECD analysts also said that, while South Korea’s economic growth has rebounded to pre-COVID levels, its employment market hasn’t made a complete recovery.

The OECD’s “Economic Outlook Interim Report,” which was published on Wednesday, predicted that Korea will see 4.0% of economic growth this year — a bump of 0.2 points from their prediction of 3.8% in May.

The OECD’s forecast is lower than those of the International Monetary Fund (4.3%) and the South Korean government (4.2%), but the same as those of the Bank of Korea and the Asian Development Bank.

The OECD projected that Korea will see 2.9% of growth next year, which is also 0.1 points higher than its previous projection.

“The OECD recently downgraded growth projections for major developed economies such as the US and for the world as a whole given the impact of the proliferation of the Delta variant [of COVID-19]. The only developed economies whose growth projections were upgraded were Korea and a few European countries, including France and Italy,” South Korea’s Ministry of Economy and Finance said.

The OECD lowered its growth projections for a large number of countries and set the global economic growth forecast at 5.7%, down 0.1 points from May. It downgraded growth rates for the Group of 20 (G20, 6.3% → 6.1%), the US (6.9% → 6.0%), Canada (6.1% → 5.4%), and Japan (2.6% → 2.5%). Some of the only areas and countries with higher projected rates were the Eurozone (4.3% → 5.3%), France (5.8% → 6.3%), and Italy (4.5% → 5.9%), while China’s projection remained unchanged at 8.5%.

The OECD raised its projection for next year’s global economic growth rate by 0.1 points, to 4.5%.

“Economic growth has picked up this year, helped by strong policy support [and] the ongoing deployment of effective vaccines,” the OECD said, while adding that “the recovery remains very uneven, with strikingly different outcomes across countries.”

While Korea’s gross domestic product (GDP) has returned to pre-COVID levels, the employment rate remains has yet to bounce back.

OECD analysts said that, by the second quarter of 2021, the US, Australia, Turkey, and China, and Korea (among G20 members) had surpassed their GDP levels from the fourth quarter of 2019. But in terms of employment rate, the only countries that had exceeded Q4 2019 levels were Australia (up 1.8%) and France (up 0.8%).

Korea’s employment rate was still 0.1% below its Q4 2019 level. Other countries that hadn’t achieved a complete recovery in employment were Italy (down 1.3%), Canada (down 2.3%), the US (down 4.5%), and Brazil (down 5.8%).

The OECD said, “different outcomes across countries [. . .] in terms of output and employment.”

“In some countries where output has returned to pre-pandemic levels, such as the United States, employment remains lower than before the pandemic. In others, particularly in Europe, employment has been largely preserved, but output and total hours worked have not yet recovered fully. Rapid rebounds in activity have occurred in a few emerging-market economies, but in some cases this has been accompanied by high inflation pressures,” the OECD said, noting that this left “countries facing different policy challenges.”

“Korea has rapidly recovered in export-backed growth. But recovery has been slower in the domestic economy, with its large share of small business owners, showing that there hasn’t been a full recovery in employment either,” said an official with Korea’s Ministry of Economy and Finance.

The OECD also revised projections for consumer price inflation in the G20 economies. It took the unusual step of offering those projections now — rather than in May and November, as it usually does — given recent concerns about inflation.

The OECD raised its projection for consumer price inflation in Korea by 0.4 points to 2.2%. Its revised projections for inflation in the G20 were 3.7% for 2021 and 3.9% for 2022, up 0.2 points and 0.5 points, respectively.

“The annual rate of consumer price inflation in the G20 economies is projected to peak by the fourth quarter of 2021 […] before slowly receding next year” as the surge in commodity prices and shipping costs slows and as the base effect declines, the OECD said.

“Nonetheless, inflation is expected to settle at a level above the average rates seen prior to the pandemic.”

Going forward, the OECD recommended that governments provide aggressive macroeconomic policy support and work with other countries to make COVID-19 vaccines available.

Laurence Boone, OECD chief economist, suggested maintaining “accommodative monetary policy” based on “clear guidance.”

“Fiscal policies should remain flexible and contingent on the state of the economy. A premature and abrupt withdrawal of policy support should be avoided whilst the near-term outlook is still uncertain,” Boone said.

In related news, the Asian Development Bank maintained an earlier projection that the Korean economy would see 4.0% growth this year in its “Asian Development Outlook 2021 Update,” released on Wednesday.

“That reflects the unexpected strength of net exports, steady investment from the private sector, and a recovery of private-sector spending despite the appearance of virus variants,” Korea’s Ministry of Economy and Finance said.

By Lee Jeong-hun, staff reporter

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