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| Bank of Korea Governor Lee Ju-yeol, right, talks with Finance Minister Hong Nam-ki while attending a National Assembly audit in Seoul, Thursday. Joint Press Corps-Yonhap |
The Bank of Korea (BOK) is expected to lower its 2022 GDP growth forecast below 3 percent due to downside risks facing the country, including continued supply chain bottlenecks, prolonged power shortages in China and the possible downsizing of growth predictions for the world’s second largest economy.
The BOK said earlier that it was maintaining its 3 percent target for 2022, expecting Asia’s fourth-largest economy to continue slow but steady improvement from the impacts of the COVID-19 pandemic.
However, there is the possibility of a downward revision to the mid- to low-2 percent level at the final monetary policy board meeting of the year in November.
On Friday, Hana Institute of Finance forecast the economy would fail to meet its earlier GDP growth target for next year. The private local think tank projected Korea’s GDP growth for next year at 2.8 percent because of a slowdown in exports and a weakening of government pump-priming measures.
“The economy could achieve solid growth from an improvement in domestic consumption as quarantine measures are eased further next year, however, overall economic growth momentum will gradually weaken amid a possible export slowdown and less aggressive post-pandemic fiscal and monetary policies,” Jung Yoo-tak, a researcher at the institute, said.
China factors
This is based on the assumption that the economy is still exposed to growing outstanding risks driven by the global supply disruption, which will slow down export growth. The Korean economy is heavily reliant on exports that account for 40 percent of annual GDP growth.
Exports to China are particularly showing signs of faltering. As of 2020, these accounted for a quarter of total exports, however, some investment banks are revising down their 2022 GDP growth outlook for China due to the suspension of production at factories there due to power outages.
Fitch lowered its prediction for growth in China to 8.1 percent from 8.4 percent based on expectations that a slowdown in the Chinese property market is putting pressure on domestic demand. Another concern involves the ability of China’s real estate giant Evergrande to stay afloat, which has been roiling global financial markets, according to economists.
Goldman Sachs reduced its 2022 GDP growth forecast for China to 7.8 percent from 8.2 percent; while Nomura Securities also cut its prediction to 7.7 percent from 8.2 percent.
But given its relative stable unemployment rate and solid exports, other economists and analysts say the impact of “spillover effects” won’t hurt private consumption in China. If Beijing controls the spillover from Evergrande and the power shortages, then the BOK could leave its 3 percent GDP growth target for the Korean economy unchanged, they said.
The BOK didn’t directly state that “China-initiated factors” would be factored in to its possible reassessment of next year’s GDP growth outlook. But the central bank acknowledged that major economies are facing setbacks in achieving a stable economic rebound, mostly due to the global supply chains shock.
“The supply chains bottleneck is mostly occurring in developed countries as they resume economic activities this year, and this will impact their growth and produce upward pressure on prices there,” the central bank said in a report submitted to the National Assembly during this year’s annual audit of government ministries and agencies.