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KDI Economic Outlook 2019-1st Half
Recent Fluctuations in the GDP Deflator: Analysis and Implications

May 22, 2019

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KDI Report VOD
Generally, the economic growth rate is calculated using the real GDP growth rate, which fixes prices to look at the changes in volume.

This differs from the nominal GDP growth rate, which reflects the changes in prices and represents the value amount.

Nominal GDP is an important economic indicator as most aspects of everyday life, for example, income, loan repayments, government budget, etc. are all expressed in terms of the amount, and not volume.

This discrepancy between the nominal and real GDP is called the GDP deflator.

Like the core and headline CPI, the GDP deflator is an indicator for the changes in prices and shows the GDP price level.
This is due to the growth in the GDP deflator, but why?

The results of KDI’s analysis on the GDP deflator using consumption, investment, export and import reveals that

while consumer and investment prices have been relatively stable,
there was considerable volatility in export and import prices.

Specifically,
international oil and semiconductor prices, exchange rates and aggregate demand pressure are some of the factors that influence the growth in the GDP deflator.

Since 2015, international oil prices have become the main source of volatility.

In 2015 and 2016, the GDP deflator rose on the back of falling oil prices and a rising exchange rate.

In 2018, the GDP deflator reversed to a decline due to rising oil prices and a falling exchange rate in the first half and rising oil prices and falling semiconductor prices in the second.

Based on these results,
the outlook for the GDP deflator in 2019 shows that
if the decline in demand eases and oil prices remain flat while semiconductor prices maintain the downtrend of 20%, the GDP deflator will mark 0.1%.

However, if demand remains sluggish and oil prices rise while semiconductor prices fall, the GDP deflator will stand at –0.2%.

Finally, if there is a rebound in demand, oil prices fall and semiconductor prices show a rapid recovery within the year, the GDP deflator will post 0.4%.

The growth in the GDP deflator growth is expected to remain low as the downtrend from last year is expected to continue while semiconductor prices continue to fall.
■ The GDP deflator has recently been significantly affected by export and import prices such as oil prices and growth is projected to remain at a relatively low level in 2019, continuing last year’s trend.

■ Preparations must be made for the potential negative impact from the continued low growth in the GDP deflator this year while measures are sought to prevent it from plummeting to excessively low levels.
 
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Office of Global Economy
Providing Economic Forecast and Macroeconomic Policy Direction, the Groundwork for a Brighter Future

The Department of Macroeconomics is conducting researches on the macro economy and macroeconomic policy, particularly focusing on suggesting the analysis of macroeconomic trends and current status of the economy at home and abroad, the economic forecast, and the policy direction of the macro economy. The Department is also in charge of establishing, sustaining and maintaining various econometric models, based on which it analyses policy effects and develops a long-term economic forecast.

Main Tasks
  • Economic trend analysis, short- and long-term forecast
  • Policy study on macroeconomic management
  • Basic structural analysis on macroeconomic areas
  • Maintenance of multi-sectoral dynamic macroeconomic model
Department of Macroeconomic Policy
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    Director, Division of Analysis and Evaluation

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  • CHO, Byungkoo On leave

    Director and Vice President, Department of North Korean Economy

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  • LEE, Jongkyu

    Fellow

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    Research Associate

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    Specialist

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  • KIM, Seulki

    Research Associate

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  • CHUN, Eunkyung

    Research Associate

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