South Korea’s economy is growing at a record rate, but Covid casts a shadow over the outlook

South Korea’s economy is growing at a record rate, but Covid casts a shadow over the outlook


Korea Economic Update

Supported by strong exports and a rebound in consumption, South Korea’s economy grew at the fastest rate in a decade in the second quarter, but optimism was frustrated by the wave of Covid-19 infections.

Data from the Bank of Korea showed that the GDP for the April-June quarter increased by 5.9% year-on-year, partly due to the low base effect when the country was hit hard by the pandemic last year. Asia’s fourth-largest economy continues to surpass its pre-crisis level, but its growth momentum has slowed, with its GDP increasing by 0.7% over the previous quarter.

The basis of economic recovery is Exports soared In the case of strong demand for semiconductors, automobiles and ships, the second quarter increased by 22.4% year-on-year. Private consumption and government expenditure grew by 3.5% and 3.9% respectively.

But the latest surge in Covid-19 infections has cast a shadow on South Korea’s economy Economic outlookAlthough the government has implemented the strictest restrictions since the pandemic began, the authorities have been working hard to contain the country’s worst epidemic.

Since the beginning of July, the number of daily cases has exceeded 1,000 Delta variant. Vaccines are also in short supply because Only one third The population has at least one dose of vaccine.

Goldman Sachs economists said: “The high base of private consumption may indicate a significant slowdown in the economy in the third quarter, especially considering the recent re-emergence of new coronavirus cases and the tightening of social distancing measures.”

The growth data is expected to increase the pressure on the central bank to begin tightening monetary policy earlier than expected.Due to record low interest rates, the Bank of Korea is increasingly turning its focus to reducing financial risks Encourage speculation In the real estate, stocks, and cryptocurrency markets, concerns about asset bubbles have been raised.

The governor of the Bank of Korea, Lee Joo Yeol, said this month that the central bank will discuss raising the benchmark interest rate at its next meeting in August, although the timing of the rate hike will depend on the pandemic.

The central bank has said that fiscal stimulus measures should alleviate the impact of virus restrictions on the economy.Parliament passed the country’s The second largest extra budget Bills worth nearly 3.5 billion won (30 billion U.S. dollars) provide cash assistance to the 80% of households with the lowest income.

Alex Holmes, an economist at Capital Economics, a research firm, said: “If the economy proves to be relatively resilient to the latest wave of viruses, as we expected, the Bank of Korea will still have It may raise interest rates next month.”.

This will make the Bank of Japan the first central bank in Asia to begin policy normalization this year. The Bank of Korea expects that the Korean economy will grow by 4% this year, rebounding from last year’s 0.9% contraction.

In addition, North Korea and South Korea said on Tuesday that they have agreed Resume communication channel. The decision was made more than two years after Seoul’s efforts to achieve the denuclearization of this isolated communist country in its diplomatic engagement with Pyongyang and internationally fell into a deadlock.

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