South Korea: Policy Efforts to Sustain Tepid Economic Momentum

Economist, Centennial Asia Advisors

Jason Tan

Economist

Centennial Asia Advisors

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Economic Policy and Strategic Advisors

Macroeconomics

<ul><li>The Korean economy has been sluggish for the last couple of years as tepid export growth and structural deficiencies weighs on growth prospects. Exports had contracted for 19 months before turning in a small positive in August. The rising REER has also dented the country’s export competitiveness even as monetary policy remains accommodative.</li><li>Youth unemployment is stubbornly high due to an inflexible job market - a pertinent worry. Key industries, including shipbuilding, shipping and finance, are losing steam and could be suffering from a structural loss of competitiveness in light of gains made by other East Asian economies.</li><li>Hence, structural reforms – painful but necessary – are needed to ensure that the long-term growth potential remains intact. The government has the fiscal space to incentivise and spur structural reforms but could alas be stymied by the deepening political impasse.</li></ul>

The Korean economy has been sluggish for the last couple of years as tepid export growth and structural deficiencies weighs on growth prospects. Exports had contracted for 19 months before turning in a small positive in August. The rising REER has also dented the country’s export competitiveness even as monetary policy remains accommodative.Youth unemployment is stubbornly high due to an inflexible job market - a pertinent worry. Key industries, including shipbuilding, shipping and finance, are losing steam and could be suffering from a structural loss of competitiveness in light of gains made by other East Asian economies.Hence, structural reforms – painful but necessary – are needed to ensure that the long-term growth potential remains intact. The government has the fiscal space to incentivise and spur structural reforms but could alas be stymied by the deepening political impasse.

South Korea: Structural Instability Could Jeopardise Long-Term Potential