2022 economy faces downside risks: South Korea finance minister

The remarks came amid growing concerns over a discord in fiscal policies between the government and the central bank.

Kim Yon-se

Kim Yon-se

The Korea Herald


Finance Minister Hong Nam-ki speaks during a meeting for economic policies at Government Complex Seoul, Thursday. (Yonhap)

January 21, 2022

SEJONG – The nation’s economy is heading toward uncertain territory due to a variety of factors at home and abroad which could restrict its growth, said Deputy Prime Minister and Finance Minister Hong Nam-ki on Thursday.

In a meeting for economic policies at the Government Complex Seoul, Hong cited three main factors– quarantine, external factors and fiscal situation — that may weigh on the growth of gross domestic product.

He clarified that the government would push for main policies — including supporting microbusiness owners, stabilizing consumer prices and supporting economic recovery — during the first half of 2022. The incumbent administration is to finish its tenure on May 9.

For the economic reinvigoration sector, the minister said exports should continue to play a crucial part in leading the recovery, as it did last year.

To boost outbound shipments, the government is moving to take countermeasures against the rising cost of logistics among export-oriented enterprises, he said.

The minister‘s remarks came amid growing concerns over a discord in fiscal policies between the government and the central bank. The government plans to prosose an extra budget of some 14 trillion won ($11.8 billion) to support small businesses hit by the pandemic while the central bank has been seeking to curb inflation with a series of rate hikes. The Bank of Korea raised the benchmark interest rate by a quarter percentage point to 1.25 percent, in its third rate hike since August, amid the fastest growth in consumer prices in the last 10 years.

Meanwhile, an analysis from the Organization for Economic Cooperation and Development suggested that Korea’s economic growth could slow down in the coming months.

According to the Paris-based organization, the composite leading indicator of economic activities for South Korea posted 101.2. This marked the drop for the fifth consecutive month.

Though the CLI climbed for 15 consecutive months between May 2020 and July 2021, it slid to 101.6 in August, 101.5 in September, 101.4 in October and 101.3 in November.

The OECD-based CLI is an index with reports that anticipate fluctuations in economic activity over the next six to nine months. A fall compared to the previous month signals that GDP growth could slow.

Nonetheless, a figure above the benchmark 100 still indicates that the Korea economy will continue to expand.

Alongside Korea, the OECD, citing indexes, expected that some major countries will possibly post slowdown from the rapid bounce-back in 2021. This could be a negative external factor for export-driven economy, Korea.

While Korea’s exports were brisk last year on the back of the base effect following lackluster performance in 2020, private consumption, which also contributes greatly to GDP as domestic demand, has shown symptoms of a slump.

According to Statistics Korea, the nation’s retail sales index fell by 1.9 percent from 121.4 in October to 119.1 in November 2021. This was the steepest in 16 months since a 6.1 percent drop in July 2020.

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