Korea is the world's 10th-largest economy, although the ranking varies somewhat depending on the exchange rate.
However, Korea Inc. is still small and unduly dependent on external factors. Korea's gross domestic product (GDP) remains one-third of Japan's and one-thirteenth of the U.S.' The nation's external dependency, or the share of foreign trade in the gross national income, exceeded 100 percent last year. The rates for Japan and the U.S. were 37.5 percent and 31.4 percent.
All this shows Korea should remain extremely attentive to international trends and changes. This is especially true now when two wars threaten global trade and supply chains, dealing more blows to the fragile world economy.
Above all, the simultaneous conflicts in Europe and the Middle East will push energy prices up further. These factors will worsen Korea's current account balance and the resultant inflation will force the U.S. to keep interest rates high, hitting Korea hard with huge household and corporate debts.
However, Korea's economic officials appear as confident as ever.
Meeting with reporters on the sidelines of the Group of 20 (G20) financial officials' meeting in Morocco on Sunday, Minister of Economy and Finance Choo Kyung-ho claimed Korea is the only major economy with an IMF-projected growth rate of above 2 percent next year. He also maintained that the government's budget for 2024 is not tight but expansionary, and the high interest rate seemed to peak out.
Yet the minister appears to be interpreting facts and events too subjectively -- and optimistically. Korea's economy should grow far higher and faster than the world's largest and third-largest economies. Private economists, pointing out that the International Monetary Fund (IMF) keeps lowering its forecast for Korea, expressed skepticism about whether the nation can reach even the lowered projection. Choo commenting on the expansionary budget just because the government increased spending on a few sectors is sophism if not a downright lie.
The Yoon Suk Yeol administration's perspective on the interest rate trends is also misguided. JP Morgan Chase CEO Jamie Dimon, the most influential Wall Street banker, warns against a 7 percent interest rate. "This may be the most dangerous time the world has seen in decades," Dimon said recently. He is not alone. Commenting on the two wars' impacts on the global economy, World Bank President Ajay Banga said the development, if this were to spread, would result in a "crisis of unimaginable proportion." We hope the government is not really optimistic but pretends to be so to give confidence to others.
Even so, most Koreans do not know that much about the goals and visions of President Yoon Suk Yeol and his economic team.
We have criticized the Yoon administration's undue emphasis on fiscal stringency, calling for it to spend more to boost the economy. Few can downplay fiscal soundness itself. As things stand now, however, Korea will likely lose both fiscal health and economic vigor. Yoon instead vows to revive the economy through reforms of labor, pensions and education. But he has not even taken the first step on any of these. Major countries resumed industrial policies but the Korean government cannot do so, especially while reducing budgets for research and development.
The London-based Economist magazine recently compared European Union members' economic performance based on the five D's -- demand, debt, demography, decarbonization and decoupling from autocracies. By these standards, Korea will come last among major economies. The nation suffers from low demand, is heavily indebted, aging fast, highly dependent on fossil fuel and places undue reliance on China.
This is no time to remain complacent, fluctuating between hopes and fears due to short-term business cycles.
Citing the near-perpetuation of low growth amid the massive property bubble, many experts are concerned about their country following in the footsteps of Japan and its lost decades.
The government's optimism reminds Koreans of the Asian currency crisis in 1997-98. At the time, economic officials tried to assure the public -- and themselves -- with words like "strong fundamentals." Korea, with far deeper foreign exchange reserves, is unlikely to fall into the same trap. Still, the Yoon administration may go down in history by failing to prepare the nation for the rapid and sweeping global changes.
Source: Yonhap News Agency