NABO Economic and Industry Trends & Issues (No. 11)
Published on 23 November 2020
Published by Macro-Economic Analysis Division of the Economic Analysis Bureau
I. Economic and Industry Trends
The Korean economy has recently been exhibiting signs of recovery mainly led by the manufacturing sector, but is experiencing increased economic uncertainty with the resurgence of COVID-19 amid a weakening service sector and decreased employment. Due to increased overseas demand, exports are recovering, mainly led by semi-conductors and automobiles, while average daily exports in October reversed to increase (5.6%) YoY for the first time since January. There was an increase in manufacturing production and plant and equipment investments, which are closely related to exports, while consumer sentiment improved significantly. However, as the labor market remains contracted from the COVID-19 shock while the pandemic is resurging at a rapid pace at home and abroad, economic uncertainty appears to be on the increase. Consumer price inflation in October was 0.1% lower YoY, as service price inflation reversed to a negative level, affected by the government’s policy support schemes. The financial markets in October witnessed a sharp decline in the won-to-dollar exchange rate, while the treasury bond yield (3-year-maturity) held steady at the same level as the previous month and equity prices decreased MoM.
Ⅱ. Pending Issues in the Economy and Industry
■ Characteristics of the Recent Economic Trends in Korea
The real economic growth rate in the 3rd quarter of 2020 reached 1.9% QoQ, the highest in a decade, backed by improved exports and plant and equipment investments, despite the spread of COVID-19 in major economies. By reaching 97.5% of when real GDP was at its peak in the 4th quarter of 2019, the pace of recovery is deemed faster than that of the previous Asian financial crisis and global financial crisis. Since recent economic trends suggest possible opportunities in new industries fit for the new economic and industrial environment, such as bio-health and li-ion batteries, efforts to prevent a contraction in private consumption must be pursued until the end of the COVID-19 crisis. This can be done by identifying and supporting creative companies, as well as mitigating the risks of bankruptcy among sole proprietors and micro enterprises.
■ Current Status and Implications of the ESG Bond Market in Korea and Abroad
As ESG bond issuance volume continues to rise in the global financial market, the issuance of foreign currency denominated ESG bonds and Korean Won denominated ESG bonds are also exhibiting a sharp increase. For the ESG bond market to grow, the focus must be on fulfilling the verification requirements for ESG bonds to establish the market’s infrastructure, while solidifying the market rules related to ex-post management and information disclosure systems. In addition, to prepare for a potential increase in fiscal involvement in relation to COVID-19, the effectiveness of fiscal intervention should be enhanced while the use of ESG sovereign bonds as a means to maintain fiscal space may be considered.
■ Trends on Internal Combustion Locomotive Regulations and Support for Environmentally Friendly Automobiles in Major Economies
Along with the ensuing vows to go carbon neutral by 2050 by Korea and major economies, regulations against internal combustion locomotives are being enhanced. Not only the European Union, but also economies that emit the highest level of greenhouse gases such as the US, China and India have set out plans to regulate internal combustion engines and support green vehicles. As a result, the environmentally friendly vehicle industry is expected to grow significantly. Although Korean green car trade volume has been increasing its presence in the auto industry, exhibiting a high rate of increase over the past five years, further research and development are necessary to secure core technological prowess and establish an ecosystem for relevant parts.
Ⅲ. Economic and Industry Issues
■ The Impact of Maternity Protection Schemes on the Childbirth Decisions
Upon analyzing the impact of prenatal, postpartum and childcare leave on the likelihood of childbirth by employed women, prenatal, postpartum and childcare leave turned out to increase the chance of such childbirth. Although the chance of employed women having children is about 4%p lower than that of unemployed women, granting prenatal, postpartum and childcare leave increases the rate by about 1.39%p. As a result, providing prenatal, postpartum and childcare leave alleviates the low possibility of childbirth among employed women by 34.3% (1.39/4,05). However, the current maternity protection scheme depends on employment insurance subscription, and the rate of utilization is somewhat low. Therefore, reinforced inspections of corporations subject to mandatory employment insurance subscription and businesses that have not subscribed to such insurance are needed, while introducing a scheme to guarantee that workers not eligible for employment insurance - such as workers in special employment types – are able to return to work before or after childbirth with a certain level of income.