S. Korea's economy drops out of global top 10

South Korea's economy was provisionally ranked as the 13th largest in the world last year. The economy’s ranking, which stood at the 10th largest for two years in a row, has fallen out of the top 10, dropping three spots. This is because the country allowed natural resource-rich countries Russia, Brazil, and Australia to overtake it. This is largely due to the exchange rate effect of the weakening Korean won. However, due to the deteriorating internal and external environment surrounding the Korean economy, it is not easy to predict when the country will be able to rejoin the league of the 10 largest economies.

South Korea's nominal gross domestic product, calculated by the Bank of Korea at market exchange rates, was 1.67 trillion U.S. dollars last year, down 7.9 percent from the previous year. Meanwhile, Russia, Australia, and Brazil, which ranked 11th through 13th in 2021, surpassed South Korea by increasing their GDP in dollars last year. South Korea, which first ranked 10th in 2005, has been on and off the list since then, standing at 10th place for two years from 2000.

The drop in ranking is directly attributed to the "King Dollar" phenomenon and the depreciation of the won. While South Korea's won-denominated GDP increased, its dollar-denominated GDP decreased by 7.9 percent due to the 12.9 percent drop in the won’s value. In contrast, the countries that overtook South Korea enjoyed a gain stemming from international price hikes of natural resources such as oil, natural gas, and iron ore that are abundant in those countries.

The problem is that a return to the top 10 is not highly likely anytime soon. The International Monetary Fund's growth forecast for South Korea this year is 1.5 percent, about half of the 2.8 percent growth forecast for the global economy. A dramatic recovery in South Korean exports in this year’s second half is also unlikely, as China's economy continues to slump amid warnings of a deflationary spiral. Moreover, Spain and Mexico, ranked 14th and 15th, respectively, are racing to catch up, with growth forecasts in the 2 percent range, which is higher than South Korea's.

The medium- to long-term outlook is even bleaker. South Korea's potential growth rate is expected to turn negative from 2047 onward as the country's working-age population shrinks due to low birthrates and an aging population. Maintaining the size of the economy with a shrinking population will require significant efficiency gains, but South Korea's labor productivity is just over half that of advanced economies. Labor reforms to address these issues have been stymied by the opposition groups’ framing of flexible working hours as a ‘69-hour workweek.’

The value of a country's currency is a barometer of its current and future economic performance. This is why we should not blame the exchange rate for our declining ranking. The global economy's transition into economic blocs threatens the very foundation of our economy, one of the biggest beneficiaries of free trade. We need to build more and faster the best technologies and companies that will withstand internal and external challenges more and faster. We cannot afford to pause a moment or retreat an inch.