South Korea discovers that its economy is larger than its estimates.. How? | Economy

Recent adjustments made by the Bank of Korea revealed that South Korea’s economy is approximately 7% larger than previous estimates suggested.

Bloomberg says the revised figures, which set 2023 GDP at 2.401 trillion won ($1.74 trillion) instead of the 2.236 trillion won ($1.619 trillion) previously set, have important implications for the country’s economic strategies and policy formulation.

Impact on debt ratios

Bloomberg notes that these reviews not only provide a clearer picture of the national economy, but also improve South Korea’s debt-to-GDP ratios, a key indicator of economic health.

And it was modified:

• The ratio of household debt to GDP from 100.4% to 93.5%.
• Government debt ranges from 50.4% to 46.9%, according to the agency.

This recalibration could impact future economic policies, especially in times of global financial uncertainty.

Global standing

The new data places South Korea as the 12th largest economy in the world, surpassing both Australia and Mexico, according to Bloomberg.

This progress is based on the GDP for 2023, which is equivalent to 1.84 trillion US dollars based on last year’s exchange rate, which highlights South Korea’s important role in the global economic scene.

The Bank of Korea’s revised GDP numbers also reflect – according to Bloomberg – changes in the economic structure, which shows an increase in the contribution of the manufacturing sector to the economy, while services and construction witnessed a decline. This shift may lead to targeted government support for these sectors to achieve a balance between growth and development.

Inflation and monetary policy

With inflation slowing to 2.7% last May, there is optimism that price stability is within reach, which may ease pressure on the Bank of Korea to maintain high interest rates.

The central bank’s decision to keep the benchmark interest rate at 3.5% last month is consistent with its ongoing assessment of economic conditions and inflationary trends, according to Bloomberg.

The Bank of Korea revised its economic forecasts for 2024 upwards after these discoveries, indicating a stronger-than-expected performance amid global economic challenges.

This optimistic forecast is supported – according to Bloomberg – by a strong growth rate of GDP in the first quarter, amounting to 3.3% on an annual basis, a slight decrease from the initial estimate of 3.4%.

Economic strategies

The significant revision in GDP numbers by the Bank of Korea and its implications for fiscal policy and debt management has sparked debate about potential fiscal expansion.

With the ruling party and the opposition likely to call for increased spending, South Korea’s economic strategy could witness pivotal changes in the coming years, according to the same source.

Currency and market reactions

The South Korean won, which has struggled against other currencies, showed little reaction to the GDP announcement.

This stability indicates that market participants were anticipating positive news and maintained their confidence in the country’s economic management.

Bank of Korea Governor Ri Chang-yong indicated in a statement reported by Bloomberg that interest rate cuts could be considered if the inflation path confirms a slowdown towards the 2% target.