Economy Expected To Rebound In 2021

South Korea's 2021 economic policy plan expects the economy to rebound in 2021 after contracting in 2020. The latest forecasts from the Ministry of Economy and Finance expect a contraction of 1.1% in 2020 GDP, 2021 is expected at 3.2%. The 2021 figure is higher than the OECD's estimate of 2.8% growth, and some way off the 3.6% estimated previously.

• GDP growth is expected to be led by improving exports and domestic demand. However, the forecasts indicate that export gains at 8.6% will outweigh domestic demand growth at 3.6%.
• South Korea will keep its expansionary fiscal policy next year and will frontload 63% of the nation's budget spending in the first half of 2021.
• Earlier in December South Korea passed a record KRW 558tn national budget for 2021. The ministry will also provide tax incentives to support domestic demand, including an additional tax credit for card spending and an extension of a cut in the consumption tax on passenger cars.
• Inflation is expected at 0.5% in 2020, and 1.1% in 2021. Well below the target rate of 2%. The report predicts South Korea will add 150k jobs in 2021 after shedding 220k in 2020.
• South Korea continues to play down the rise in cases, health ministry officials have insisted that a full scale lockdown is not imminent despite rising cases.
• Yields are mixed in South Korea, seeing some selling in the long end and the short end, while the belly remains relatively stable. South Korea will auction 1-year and 20-year paper next week. The 20-year sale is for KRW 400bn compared to KRW 1tn at the last sale in November, which could help explain the lack of movement in the 20-year bucket.
• 1-year yield is some 8.2bps higher at 0.573bps, 10-year flat at 1.693%, 30-year up 1.9bps at 1.803%. 10-year future has trended down through the session, last down 0.38 at 129.73.