Economic Outlook for 2020
Published on March 31, 2020
Published by Macro-Economic Analysis Division, Economic Analysis Department
In 2020, the domestic economy is expected* to grow by 1.6% - a dip from the previous year as private consumption and exports are slowing significantly due to the impact of the COVID-19 outbreak. In terms of private consumption, the economic activities and psychological sentiment of the consumers, etc. have been largely undermined due to the virus, likely leading to a sharp drop in domestic and overseas consumption; and exports are expected to remain sluggish from a delayed recovery caused by a reduction in global trade following the spread of COVID-19. A continued decline in construction investment is expected to carry on from last year because of the prolonged lackluster housing market. Although facility investments are expected to turn upward, mainly in the IT industry, the spread of COVID-19 may suspend new investment. Intellectual property product investment is expected to maintain a similar YOY growth trend thanks to continued R&D investment involving new technologies and increased software spending.
In foreign exports, exports to China – Korea’s largest trading partner - are expected to decrease as the Chinese economy is suffering from production disruption and stagnant domestic demand due to COVID-19. And with the global spread of the virus, it also seems inevitable that Korea's exports to major countries besides China are likely to be adversely affected. The current account balance is expected to record a similar level to last year because, while the deficit of service account and primary and secondary income accounts are increasing, the surplus in the merchandise trade balance is also growing.
Although the labor market is adding jobs mainly in certain service sectors, the pace of increase in the number of new recruits is expected to slow down YoY as the number of those who found jobs in the construction and manufacturing industries continues to decrease. Consumer prices are likely to hover below 1% per annum, because inflation pressure is weak on both the supply and demand sides. Treasury bond yields (three-year maturity) are expected to fall below last year’s rate due to heightened uncertainty in relation to the spread of COVID-19, the sluggish economy, and falling international interest rates. Additionally, high volatility in the won/dollar exchange rate is expected to continue due to instability in the international financial markets.
The domestic economy is expected to face further hardships this year due to the outbreak of COVID-19 when the nation was already witnessing sapping economic vitality coming into this year. Therefore, timely and flexible monetary and fiscal policies must be implemented to alleviate the burden of households and businesses that have been pushed to the limit and to absorb some of the shock felt by the real economy. At the same time, they must accompany appropriate countermeasures to address risk factors triggered by the virus as well as efforts to expand our growth potential to better respond to potential changes to internal and external economic structures.