NABO Economic· Industrial Trends & Issues (No. 8)
Published on 2020.8.25.
Published by Macro-Economic Analysis Division, Economic Analysis Department
I. Economic·Industrial Trends
Recently, the Korean economy has seen a slight easing in the sluggishness of its economy, with production rebounding and reductions in export volume and employment declines. In June, industrial production and retail sales increased by 7.2% and 2.4% MoM, respectively. In July, although exports (-7.0% YoY) continued to fall, the decline was offset due to the resumption of economic activities of major trading partners. Despite the fact that the COVID-19-bound employment shock in the labor market lingered in July, as economic activities gradually resumed, the pace in the decreasing number of employed slowed down. Consumer prices rose from the previous month as prices of agricultural and fisheries products increased due to a prolonged rainy season and the decline in oil prices narrowed, resulting in higher oil prices compared to the previous month. The financial market seemed to be stabilizing in July with treasury bond yields (a three-year maturity) and the won-dollar exchange rate falling, and share prices rising.
Ⅱ. Pending Economic·Industrial Issues
■ Korea's productive capital stock trend and implications
The increase in Korea's productive capital stock has slowed significantly in the last 10 years since the Global Financial Crisis, due to diminishing fixed investments mainly in construction investment. Amid the rapid aging of the population, stalling productive capital stock led by declining fixed investments poses a risk of accelerating the downward trend of the nation’s economic growth rate. In this regard, increasing the growth contribution of capital through revitalization of facility investments and continuous expansion of investments in intellectual property products that are related to knowledge-based industries will be one of the major areas to target in the future.
■ Characteristics and implications of fund flow in Q1 of 2020
In the first quarter of 2020, cash & deposit management, loans by households and non-profit organizations, and loans from non-financial corporations increased significantly. This was due to a decrease in consumption expenditures by households and non-profit organizations, an increase in customer deposits related to stocks and long-term loans related to housing, and an increase in financing toward securing liquidity by non-financial corporations. As such changes can have negative impacts on the economy, including increased volatility in asset prices and rapid increase in debt, their continued monitoring by the government should remain in place.
■ Key contents of the 2020 Korean economic survey report by OECD
The OECD assessment found that while economic activity within the Korean economy was significantly compromised due to COVID-19, the growth rate decline was the smallest among OECD member countries due to the implementation of timely policies by the government. In addition, the OECD predicted that Korea will record a growth rate of –0.8% in 2020, the least sharp decline in the growth rate dip among OECD member countries.
■ Changes in employment of temporary/daily workers since COVID-19 outbreak
COVID-19 is negatively affecting the employment, temporary leave, and working hours of temporary/daily workers, and the extent of the impact was found to be greater than that of other groups. In addition, it was found that the degree of employment shock that COVID-19 has had on temporary/daily workers differs by group, and relatively vulnerable groups have dealt with greater shock.
■ Key content and major challenges of Digital New Deal
The focus of the “Comprehensive Plans for Korean Version New Deal” announced by the government is a digital new deal based on ICT, tapping into its strengths as Korea’s e-government infrastructure and its services are considered the most advanced in the world. In this regard, specific project plans should be devised from which synergistic effects can be expected once carried out in conjunction with policies to close socio-economic gaps by creating added value and jobs in future industries.
Ⅲ. Economic · Industrial Issues
■ Prediction of Korean economy’s recovery path, as suggested by short and long-term interest rate differences
The future recovery path of the Korean economy was analyzed using short- and long-term interest rate differences, which are known to help predict future outcomes, especially when economic situations at home and abroad are fraught with uncertainties. Analysis of the expectations formed through long- and short-term interest rate differences in the domestic bond market indicates that, if current uncertainties persist through Q4 of 2021, the recovery path for the Korean economy is likely to be U-shaped or slight swoosh-shaped. Paths analyzed using three alternative scenarios show that, if all the uncertainties caused by the US-China trade disputes and COVID-19 are resolved early, a V-type recovery is expected. Under these circumstances, it is necessary to implement appropriate policies to prevent the market's positive expectations from being dampened by uncertainties.