Following the Korea Development Institute (KDI), a state-run research institute, and the Organization for Economic Cooperation and Development (OECD), an international organization, the Bank of Korea also forecasts next year’s growth rate at 1 per cent, and attention focuses on whether the government will draw up a forecast in the 1 per cent range.
According to the Ministry of Strategy and Finance on the 27th, the government intends to review macroeconomic index forecasts by publishing next year’s economic policy direction around the middle or end of next month.
Every year around mid to late December, the government publishes the economic policy direction for the following year, and announces this year’s achievements and next year’s tasks. In the new government’s economic policy address published earlier in June, the Ministry of Strategy and Finance presented a growth rate forecast of 2.5% next year. Although the possibility of an economic slowdown next year has been reflected in the 2.5% growth rate, additional downward revisions are inevitable as inflation rises faster than expected, rising energy prices, and a drop in exports in overlap
The growth forecasts for the next year by major organizations are lowered one after the other.
KDI reduced next year’s growth rate to 1.8%. The OECD also forecast 1.8%, down 0.4%p from the previous 2.2%. In particular, the OECD predicted that the growth rate would be only 1.9% in 2024, below the potential growth rate. The Bank of Korea lowered its forecast for next year’s growth rate to 1.7%, down 0.4% from the previous level, in the economic outlook published immediately after the base rate hike on the 24th.
Usually, government projections before an economic recession set higher growth rates than those of other forecasting agencies. It shows the government’s will to protect the economy.
In fact, when the government announced its economic policy direction for the second half of June 2020, it forecast the growth rate for that year at 0.1%. At a time when uncertainty is growing due to the Corona 19 pandemic, even a growth rate of 0.1% has been criticized as too optimistic. At the time, most institutions such as the Bank of Korea (-0.2%) and the International Monetary Fund (IMF, -1.2%) expected negative growth. Regarding this, the government said, “It includes the will to shoot for positive growth.”
This means that next year’s growth rate will be maintained at the level of the potential growth rate, which means that there is a possibility of predicting a level of 2.0%.
However, it is not clear whether the government will reflect its will to protect the economy in next year’s growth rate. In 2020, the government played an important role by implementing expansionary fiscal policies, including four supplementary budgets due to a sharp economic downturn. However, the government has warned of austerity next year. Next year’s budget presented to the National Assembly was set at 639 trillion won, a reduction from the second supplementary budget this year.
Deputy Prime Minister and Minister of Strategy and Finance Choo Kyung-ho’s emphasis on explaining the economic situation according to its value to the public is also expected to have an impact. In fact, since the inauguration of Deputy Prime Minister Chu, whenever the Ministry of Strategy and Finance has published major economic trend indicators such as prices and employment, he has expressed concerns about the future without hesitation.
An official from the Ministry of Strategy and Finance said, “As discussions on the budget and taxation continue in the National Assembly, we will make a comprehensive decision.”
Correspondent Dahyun Choi [email protected]