By Song Kyung-jin
Increasing numbers of empty store rentals, unceasing price hikes and the reduced volumes of exports are all pointing to a stagnated economy which has been a major concern of every Korean throughout the year. An outlook from the Asian Development Bank on Dec. 13 presented Korea’s growth forecast of 1.3 percent for 2023 and 2.2 percent for 2024, 0.1 percent point and 0.2 percent point lower than that of the Korean government, respectively. High inflation will still be around into next year.
A new McKinsey & Company report on Korea released this month likens the Korean economy to a frog in a pot of hot water that is much hotter than a decade ago. It sends Korea a stronger warning than its sensational previous report, which described the Korean economy then as a frog — in a pot of boiling water — that was too complacent to press ahead with reforms needed for advancement to the next level.
The Korean economy lacks no challenge — a shrinking population, falling financial depth, the continued weakening competitiveness in key industries such as semiconductors, petrochemicals and shipbuilding due to fierce competition from competing countries such as China, the U.S.-China tensions and the Ukraine crisis. Added to it, if Trump 2.0 arrives next November, more trade and tariff challenges will stand in the way of the Korean economy with high average trade dependency of 85 percent between 2018 and 2022 as irritating and costly stumbling blocks.
With the world’s lowest birth rate of 0.77, Korea is confronted with points to lower economic competitiveness and thus growth in mid to long term on the back of a smaller working-age population and a higher dependency ratio. The working age population aged 15-64 years is expected to fall from 72.1 percent in 2020 to 46.1 percent of the total population by 2070. The dependency ratio of 117 in 2070 will be much higher than that of Japan (98) and the United States (71). Also, while having improved, Korea’s labor productivity is still lagging behind its competitors, standing at around 70 percent of that of France, Germany and the United States.
Against this backdrop, it is critically important to utilize the labor force available at home and abroad. Yet the female labor participation rate of 57.7 percent is far lower than that of Japan (71.3 percent) which has experienced the effects of demographic changes ahead of Korea. Two of the greatest reasons why young Korean couples do not wish to have children are often said to be excessive housing and education costs. It was highlighted in the McKinsey & Company report a decade ago as the issues to be addressed by Korean society with a sense of urgency. The fast declining population is a testament to the lack of policy measures to ameliorate the situation. Perhaps, it might be near impossible to turn around the demographic change; however, the right policy measures could help reduce the speed of population decline. Korea should get more genuine and serious about recruiting foreign talent for advanced R&D and manufacturing.
It has become a fixed scene in Korea to have hopes to be accepted into the Morgan Stanley Composite Index and such hopes deflate in no time. As long as the so-called "Korea discount" arising from the North Korean threat and more from the lack of transparency in corporate governance, the Korean stock market will continue to be bound by limitations. Corporate transparency has kept Korea low in the international ESG assessment. The financial depth of Korea fell from 10.9 percent in 2018 to 8.2 percent in 2022.
The third major component of economic growth is total factor productivity encompassing innovation and competitiveness. The semiconductor industry accounts for 19 percent of Korean exports. Memory chips are Korea’s forte; but Korea is weak in semiconductor systems such as logic, foundry and packaging, accounting for only 3 percent of the global market share. Korea needs an industrial policy to boost its competitiveness in chips, both memory and non-memory. Countries in the global semiconductor supply chains in fierce competition are no longer limited by the World Trade Organization’s agreement on subsidies and countervailing measures. Industrial subsidies have been fashion revived. The Korean government should proactively provide support for R&D activities, recruiting and retaining talent, reducing the productivity gap between large companies and small and medium enterprises in the semiconductor value chain. Any industrial policy these days will not be sound without including specific efforts for decarbonization.
The Korean economic miracle in the 1970s and the 1980s was ramped up by capable government think tanks tailored to key industries. It is only an irony that a national think tank on semiconductors is absent in the economy which relies heavily on chips for its growth. A national think tank can share the burden of R&D and cost-sharing almost entirely left to the private sector.
Without a set of adequate policy measures to address and redress the above key problems in place at the earliest possible time, the Korean economy might be destined to end up with a pot of the hottest water.
Dr. Song Kyung-jin (kj_song@hotmail.com) led the Institute for Global Economics (IGE), based in Seoul and served as special adviser to the chairman of the Presidential Committee for the Seoul G20 Summit in the Office of the President. Presently, she is executive director of the Innovative Economy Forum.
Taking Korea's economy out of hotter pot
18
0
19.12.2023
By Song Kyung-jin Increasing numbers of empty store rentals, unceasing price hikes and the reduced volumes of exports are all pointing to a stagnated economy which has been a major concern of every Korean throughout the year. An outlook from the Asian Development Bank on Dec. 13 presented Korea’s growth forecast of 1.3 percent for 2023 and 2.2 percent for 2024, 0.1 percent point and 0.2 percent point lower than that of the Korean government, respectively. High inflation will still be around into next year.
A new McKinsey & Company report on Korea released this month likens the Korean economy to a frog in a pot of hot water that is much hotter than a decade ago. It sends Korea a stronger warning than its sensational previous report, which described the Korean economy then as a frog — in a pot of boiling water — that was too complacent to press ahead with reforms needed for advancement to the next level.
The Korean economy lacks no challenge — a shrinking population, falling financial depth, the continued weakening competitiveness in key industries such as semiconductors, petrochemicals and shipbuilding due to fierce competition from competing countries such as China, the U.S.-China tensions and the Ukraine crisis. Added to it, if Trump 2.0 arrives next November, more trade and tariff challenges will stand in the way of the Korean economy with........
© The Korea Times
visit website
login
who are we?
contact us
qosheapp
Toi Staff
Gideon Levy
Belen Fernandez
Tarik Cyril Amar
Rami G Khouri
Dr Ramzy Baroud
Mort Laitner
Bradley Blankenship
