Bank of Korea "Growth Rate This Year 1.6~1.7%... -0.2%p Due to Political Uncertainty"

The Bank of Korea has projected that this year's economic growth rate will be limited to 1.6~1.7%. It is expected to fall 0.2~0.3 percentage points below the previous forecast of 1.9% announced at the end of November. The decline in growth rate due to political uncertainty is estimated at 0.2 percentage points.

On the 20th, Lee Ji-ho, Director of the Bank of Korea's Research Department, analyzed this in a blog post titled 'Bank of Korea's Economic Assessment.' Director Lee explained, "It is estimated that the growth rate has decreased by 0.2 percentage points due to political uncertainty triggered by the martial law incident in December last year and the resulting economic sentiment contraction." This analysis assumed that the heightened political uncertainty at the end of the fourth quarter last year would continue until the first quarter and gradually resolve from the second quarter.

It was also considered that the growth rate in the fourth quarter of last year is expected to fall short of the initial forecast, which could act as a factor lowering this year's growth rate forecast. The Bank of Korea sees the possibility that the fourth quarter growth rate could fall below 0.2%. It is projected to shrink to less than half of the quarterly growth rate of 0.5% forecasted at the end of November.

This is due to significantly sluggish consumption-related indicators. According to the Bank of Korea, card spending rapidly slowed from the end of December, and imported car sales further contracted in December. Construction investment also worsened as apartment sales performance decreased to 21,000 units, 17.2% below the initial plan of 25,000 units.

The fourth quarter growth rate has a carryover effect on this year's growth rate. Accordingly, considering political uncertainty and carryover effects, this year's growth rate is projected to be 1.6~1.7%, about 0.2~0.3 percentage points lower than initially expected.

The variable is whether political uncertainty will persist. Director Lee noted, "It is difficult to predict how political uncertainty will unfold in the future, but if it eases faster than expected, the negative impact on the economy will also be smaller."

The timing of additional government economic stimulus is also presented as an important consideration. Director Lee expected, "If economic policies such as supplementary budgets are rapidly implemented through bipartisan agreements, it could buffer a significant part of the downward pressure on the economy."

The economic policies of the Trump administration are also expected to affect the growth rate. Director Lee explained, "The Bank of Korea initially assumed that the new U.S. government's protectionist policies would be significantly strengthened in its economic outlook," and "depending on how it materializes after January, the impact on our economy will vary."

Reporter Kang Jin-kyu josep@hankyung.com