Economists said it is uncertain if the improved COVID-19 situation will be a shot in the arm for the slumping economy, pointing out that runaway inflation and high interest rates are still weighing on consumer sentiment.
Soaring heating bills this winter and an anticipated hike in public utility charges are predicted to force people to tighten their belts, although the indoor mask mandate lifting is aimed at returning to normal life three years after the outbreak of the pandemic.
Nomura Securities economist Park Jung-woo predicted that the Korean economy will enter the phase of an economic slowdown in the first quarter of this year. "High interest rates and high prices combined with the weakening property market will dampen consumer sentiment further, leading to economic downturn," he said. Park recommended that the government should take timely and proper measures to better respond to the possibility of a prolonged economic slump amid stagnating domestic consumption.
He warned against some policymakers’ optimistic views about a quick economic rebound, saying that economic projections by the government and the Bank of Korea (BOK) are too focused on overseas factors, ignoring the worsening domestic situation.
One of several gloomy indicators is the consumer price index (CPI) that is expected to remain at a high level this month after surging 5 percent in November and December 2022. Besides, higher interest rates will continue for the time being even though the BOK may freeze its key policy rate at the current 3.5 percent level. Whether to leave the rate unchanged or not will depend not only on inflationary pressure, but also on the course of action the U.S. Federal Reserve will take in its monetary policy.
However, Economy and Finance Minister Choo Kyung-ho put forward an optimistic view on January 26 that the economy can rebound in the first three months of this year after contracting 0.4 percent year-on-year in the fourth quarter of last year.
He added that China’s reopening after the resurgence of COVID-19 will help boost Korea’s exports and its economy in the first quarter, adding that the global economic situation and the semiconductor industry are likely to turn for the better in the second half of the year.
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