“Consumption recovery strengthens… Inflation rate to exceed 2% by the middle of next year”

BOK revised economic outlook

Maintain 4% GDP growth this year
Inflation increased by 0.2%P by 2.3%
Next year 0.5%P plus 2%
Improvement in the increase in the number of employed people

The Bank of Korea maintained its real GDP growth forecast for this year at 4.0% despite the fourth wave of COVID-19. This is interpreted as a result of reflecting the recovery of private consumption following brisk exports and a gradual recovery of daily life. On the other hand, the rise in crude oil and raw material prices, supply chain disruptions, and increase in consumer demand pushed up prices.

In its revised economic outlook released on the 25th, the BOK presented its real GDP growth rate of 4.0% this year, the same as its August forecast. The growth rate for next year was maintained at 3.0%. Although the fourth wave of COVID-19 has continued for nearly five months since early July, it is judged that the economic recovery is continuing. The BOK expects to “continue a solid growth trend as private consumption recovers intensified while exports and investment continue to flow well.” In particular, it is predicted that the contribution to domestic demand will increase while the contribution to exports will decrease next year. Accordingly, compared to the August forecast, the growth rate of private consumption this year increased by 0.7 percentage points from 2.8% to 3.5%, and the growth rate of private consumption for next year was also raised from 3.4% to 3.6%.

On the other hand, this year’s facility investment growth rate fell to 8.2% from the 8.8% forecast in August, and the construction investment forecast turned to negative (-0.7%) from 0.9%. Although investment was sluggish than initially expected, private consumption, which is revived through a gradual recovery of daily life, offset the sluggish investment. The BOK added, “This year’s facility investment, mainly in the information technology sector, reflects the base effect, which is expected to continue the increase in investment in terms of amount.”

Employment prospects have also improved. The expected increase in the number of employed people this year, which stood at 200,000 in August last year, has risen to 350,000, and the unemployment rate has also been lowered from 3.9% to 3.7%. Employment in the service industry is expected to increase as a result of the gradual recovery of daily life.

The inflation trend is expected to continue for a long time. The annual consumer price inflation forecast for this year has been raised by 0.2 percentage points from 2.1% to 2.3%, and the consumer price inflation rate for next year has been raised by 0.5 percentage points from 1.5% to 2.0%. In particular, in the November Consumer Trend Survey, the ‘expected inflation rate’ (2.7%), which corresponds to the expected inflation rate for the next one year, jumped 0.3 percentage points from October.

Kim Woong, head of the BOK’s research bureau, said, “For now, the consumer price inflation rate is expected to exceed 2% by the middle of next year.” said


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