Ⅰ. Current Economic Conditions
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The Korean economy is continuing a moderate recovery on improving exports despite weak domestic demand resulting from the COVID-19 spread and global supply disruptions. |
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By expenditure item, domestic demand slowed on the rapid spread of COVID-19 and strained global supply chains, but exports continued high growth, led by semiconductors. |
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Given the overall internal and external factors at play, the Korean economy is likely to continue a modest recovery led by private consumption despite external risk factors. |
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Macroeconomic policy needs to gradually normalize monetary accommodation in light of the pace of recovery and, simultaneously, tame high inflation and ballooning sovereign debt. |
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New political and economic challenges meet the Korean economy coming out of the COVID-19 crisis, and they require special attention to medium- to long-term structural reform of the economy. |
Ⅱ. Domestic Economic Outlook for 2022~2023
1. Assumptions on Internal and External Conditions
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The global economy is assumed to rapidly decelerate in 2022~2023. |
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Crude oil prices (Dubai) will remain high at $105 per barrel in 2022 and slide a little to $92 in 2023. |
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In terms of the real effective exchange rate, the Korean won is assumed to depreciate by about 4% in 2022 and remain little changed in 2023. |
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It is assumed that the second supplementary budget bill currently under discussion will be executed at a level similar to the government’s draft. |
2. Domestic Economic Activity Outlook
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The Korean economy is forecast to grow 2.8% in 2022 on shrinking investment and rebounding private consumption but 2.3% in 2023 on slower exports. |
□ | The current account surplus is expected to narrow sharply in 2022 from the previous year due to deteriorating terms of trade amid slowing exports and imports in volume terms. In 2023, it will rebound slightly as service imports will increase significantly despite the terms of trade improving. |
□ | Headline inflation is expected to rise fast in 2022 led by gradual economic recovery and soaring oil prices and moderate in 2023 as oil prices stabilize. |
□ | The number of employed persons is expected to increase significantly by about 600,000 in 2022 as face-to-face services are back. The favorable growth will continue into 2023 with a reduced increase to 120,000 due to the base effect. |
3. Risks
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In case raw material supply shortage and global supply chain disruptions drag out long-term, or the Chinese economy takes a nosedive, the Korean economic growth may take a hit, especially on exports. |
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In case the US interest rate hike accelerates and the global economic recovery is limited, especially in emerging countries with weak economic fundamentals, it is likely to have a negative impact on the recovery of the Korean economy.. |
Ⅲ. Policy Recommendations
1. Fiscal Policy
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Fiscal policy should gradually normalize the sharp widening of the fiscal deficit and the surge of sovereign debt during the COVID-19 crisis. |
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Compensating damages resulting from COVID-19 measures is unavoidable, but the demand for public spending should dictate government expenditure rather than short-run government revenue fluctuations for fiscal sustainability. |
2. Monetary Policy
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Monetary policy should gradually increase the base interest rate for stable expected inflation. |
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Korea’s monetary policy should put more emphasis on domestic inflation and economic conditions as compared to US monetary policy. |
3. Financial Policy
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Since the surge in private loans in the aftermath of COVID-19 can threaten financial instability, financial policy should maintain its tough stance on macro-prudential regulations and prepare for effective risk responses. |
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 TasksDirector, Division of Analysis and Evaluation
82-044-550-4725Director and Vice President, Department of North Korean Economy
82-044-550-4725Fellow
82-044-550-4725Research Associate
82-044-550-4725Specialist
82-044-550-4725Research Associate
82-044-550-4725Research Associate
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