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Moon Outlines S. Korean Economic Plan as Think Tanks Point to Continued Slowing

South Korean President Moon Jae-in speaks during a signing ceremony for the U.S.-Korea Free Trade Agreement on the sidelines of the 73rd United Nations General Assembly in New York, Sept. 24, 2018.
South Korean President Moon Jae-in speaks during a signing ceremony for the U.S.-Korea Free Trade Agreement on the sidelines of the 73rd United Nations General Assembly in New York, Sept. 24, 2018.

The economic outlook in South Korea is not good, according to the Hyundai Research Institute, which stated in a report this week that the economy “reached its peak in May 2017” and may bottom out in 2020.

The bad economic news continues to contribute to President Moon Jae-in’s plummeting approval rating, which now stands at 45 percent, his lowest evaluation according to Gallup Korea. The latest poll indicates 53 percent of businesses gave Moon a negative rating, compared to only 41 approving of his administration.

The Hyundai Research Institute forecasts South Korea’s economic growth rate at 2.5 percent for the coming year, a rate matched by the LG Economic Research Institute. The state-run Korean Development Institute and the International Monetary Fund estimate a 0.1 percent higher growth rate. However, the Bank of Korea is an outlier and holds on to the most optimist view of a 2.8 to 2.9 percent growth rate through 2020.

Kim So Young, an economics professor at Seoul National University said Asia’s fourth-largest economy is slowing down, “but at this moment, it’s not at it’s worst.”

Research Fellow Chung Min, at the Hyundai Research Institute, said data it collected predicts things will approach the economy’s lowest point during the second half of 2019.

The 2018 third-quarter data led Seoul to cut its upcoming economic outlook, citing weak investments and global trade disputes.

"The economy is faced with downward risks such as deepening trade disputes, spreading financial instability in emerging markets amid the normalizing monetary policy by the major countries," according to the government outlook.

Experts agreed with that assessment, but had more to add.

Kim So Young said rising household debt is another factor, and Yonsei University professor of economics Taeyoon Sung cited two other potential causes.

One, he said, is major businesses have lost their competitiveness in global markets. The other is the Moon administration’s mandate to increase the minimum wage. Sung asserted higher wage costs have had a huge impact on the market economy.

Hansung University assistant professor Kim Sang Bong specifically identifies potential hardships the South Korean semiconductor sector may face because of increased competition from China and potential for the United States economy to “bottom out” in 2020 as well because of its own trade issues.

Hopes of a turnaround

Monday, Moon unveiled his plan to stave off South Korea’s stagnant economy and reverse course from his administration’s income-led growth policy, dubbed “J-nomics” (a combination of the president’s name (Jae-in) and economics).

Moon said in a ministers meeting that “we have to put policies that would vitalize the economy through innovation in regulation and encourage investment and, at the same time, lift regional economies and balanced development.”

Moon acknowledged that “it’s difficult to radically change an economy in a five-year term… In the process of changing the economic policy direction [to income-led growth], there could be some controversy and doubts, but we need to take an attitude to see [the changes] bear fruit with patience.”

Taeyoon Sung finds it hard to be optimistic about South Korea’s economy, predicting a continued downward trend for the country and calling the global situation “out of control.”

Hyundai Research Institute’s Chung Min said, “In the short-term, the administration needs to encourage investment and regulatory reform is required for that (reform) to take place, particularly in the SOC (Social Overhead Capital, a term referring infrastructure needs of a society).”

“Because investment in the construction sector is decreasing, it is necessary to have early execution of SOC [projects],” he added. “In the long-term, economic restructuring should take place, leading to a more active economy.”

The Hyundai Research Institute recommends the government carry out more flexible economic policies and consider an interest rate cut, "also, they should pursue expansionary fiscal policies and front load 2019 budget in the first half.”

Kim So Young agrees that altering South Korea’s current economic policies is a wise course of action, because the nation cannot control external conditions like the tariff dispute between Washington and Beijing.

Moon’s announcement “patches” things, said Kim Sang Bong, “but it offers no consistent policy.”

Leading Sung to mention that whatever changes are implemented, it will be difficult to forecast any type of recovery time should the economy “bottom out” as the Hyundai Research Institute predicts.

Chung Min noted that continued and careful monitoring of the economy is needed.

Lee Ju-hyun contributed to this report.

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    Steve Miller

    Steve Miller is a veteran broadcast journalist with over a decade of experience. He is currently the Executive Producer of VOA's audio programs including its long-form podcasts and hourly 5-minute newscasts. Before joining VOA in 2016, Steve covered the Indo-Pacific region while living in South Korea, where he explored the region's rich history and culture while reporting on geopolitics, human rights, and tourism.