Economic Outlook for 2021
Published on March 31, 2021.
Published by Macro-Economic Analysis Division, Economic Analysis Department
In 2021, the domestic economy is expected to grow 3.1% led by exports and facility investments. Although service exports may need some time to recover, goods exports are expected to pick up significantly on the back of a rebound in the overseas demand. As for facilities, additional investments in the IT sector are expected amid robust growth of semiconductor and display exports, and new investments are anticipated in the non-IT sector mostly in new environmentally-friendly industries. Also, improved consumer sentiment, stronger purchasing power (from an elevated household savings rate), as well as the government's efforts to revitalize private consumption spending, will likely help the nation emerge from last year's recession. Still, further economic recovery is expected to take longer due to less-than-desired improvements in household employment and income conditions.
As for employment, the number increased by 83,000 compared to the previous year, with the slowdown abating in the manufacturing and construction sectors, and a rebound, albeit limited, in the contact-required service sector. Consumer prices are expected to rise 1.3% as the economic recovery and rising raw material costs work to increase inflation pressure on both sides of supply and demand. The three-year treasury yields are expected to trend upward due to recovery improvements in the domestic economy, rising consumer prices, and increasing demand for bond issuance. In the meantime, the won/dollar exchange rate is forecast to stand at KRW 1,130, which is lower than last year, due to favorable macroeconomic fundamentals present in the domestic economy and the consistent stream of USD supply in the foreign exchange market.
This year's economic situations at home and abroad are predicted to put Korea on track for economic recovery by virtue of the distribution of vaccines and economic stimulus measures introduced by individual countries. However, we are not out of the woods yet, as we may be in for some major changes that have occurred post-COVID-19. With more and more aspects of people's lives touched by the whirlwind of Industry 4.0, there is no doubt that COVID-19 will only accelerate the transition to a digital economy, promoting the contact-less economy, for example. This suggests that it is imperative that we implement structural reforms and technological innovations in our industrial structures and labor markets proactively and preemptively as part of our growth strategies in the post-COVID-19 era.