No time for self-praise for Korea’s economy

The South Korean government, reaching a turning point of its term, self-praised its achievements of stable management of the macroeconomy despite the global complex crisis over the past two and a half years. Its key achievements include a consumer price increase rate of only 1.3% as of last month, while exports in the first half of this year increased 9.1% year-on-year. The employment rate is at an all-time high, and moderate household and national debt levels were also emphasized. All these achievements were in line with President Yoon Suk Yeol’s public address on Wednesday that “the economy is now taking off,” but this is bewildering self-praise for people who have long suffered from high inflation and high interest rates.

Even the indicators provided by the government to emphasize their achievements are difficult to be seen as their own accomplishments. Though the inflation rate has grown moderately, it has remained high for several years. Exports recovered since the end of last year, but the growth rate has slowed since July. The government boasts of revenue, but tax revenue has been in deficit for two consecutive years, with funds being mobilized from various sources, to make up the deficit. The increase of low-quality, short-term jobs has contributed to the highest employment rate in history.

Indicators that the government has not emphasized indicate an even darker picture. GDP (gross national product) growth rate is expected to remain in the low 2% range this year, following 1.4% last year, with signs of prolonged low growth. KOSPI, which started at around 2,600 at the start of the Yoon administration, is still struggling at 2,500 levels despite government policies. Unlike developed countries that reduced debt during high interest rates, Korea's domestic demand has not been able to recover, weighing down by household debt and government debt, which remains at record high levels.

Economic policy management was as equally disappointing as the results. Despite the emphasis on the market economy and structural reform, policies proved to be all words and no action. Real estate policies were frequently reversed and were not coherently carried out by ministries, which raised housing prices and household debt. Though the government's repeated hasty price controls and interest rate interventions have resulted in market distortion, the president has consistently claimed that the growth rate would grow stronger in the second half of the year, emphasizing ‘signs of recovery.’

What is more concerning is the future that lies ahead. With former President Donald Trump returning to power in the United States, major challenges are expected to hit Korea's economy in the areas of trade, industry, and finance. Exports and inflation, indicators, which the government claims to be strong, could be shaken. The government must move away from optimism and self-praise, face the reality of the Korean economy, and prepare a new economic strategy for the second half of its term.