ust like in 2016, there is a high possibility that political instability in
the nation will continue in 2017. It
is also reasonable to assume that
such political uncertainty will serve as an
obstacle to growth, especially as a new
transition of power will take place with
the early presidential election. But despite
instability in the political arena, there are
several positive signs for economic
First, the global economy and international trade are expected to regain vitality. Many research institutes prospect that the global economy, particularly the US economy, will pick up next year, which will in turn lead to increased trade volume overall. If such prospects prove right, this will increase the growth rate of the Korean economy because it is heavily dependent on exports. Despite the potential lag in time, the effects of increased exports will eventually spill over to domestic demand as well. However, Korean exports will not see a boost right away because the Chinese economy, which accounts for 30 percent of Korean exports, is expected to maintain its “medium growth” policy for the time being.
Second, global corporations are set to increase their production capabilities after several years of postponed investments. In recent years, corporations made minimum investments to maintain or supplement existing production lines due to prolonged period of slow growth and the resultant demand shortages. Because of notably low demand, companies could meet the market demands by merely adjusting their inventories. However, demand is gradually increasing in the global market, while the number of shipments is climbing up again. There is also increasing demand for new products, which will put pressure on corporations to make new capital investments.
Third, there will be a soft landing for
the private debt problem. Currently, there
are many constraints when it comes to private consumption. The most worrisome is private debt, which surpassed
KRW 1.4 quadrillion (USD 1.2 billion)
as of the end of 2016. This amounts to
approximately 80 to 90 percent of the
GDP. In particular, experts predict that if
the bubble of the real estate market goes
bust, it will trigger a financial crisis in the
private sector because the significant portion of the private debt is linked with the real estate market. Worse yet, domestic
interest rates will likely increase in the
future with the US federal interest hike.
This will lead to a heavier financial burden of families to repay their debt as well
as their reduced consumption power.
Therefore, properly managing private
debt can revive private consumption. It is
fortunate that the private sector as well as
the government is well aware of the seriousness of the problem. The government
is carefully monitoring the market situations and it is carrying out various measures to contain risks. The financial sector
also understands the severity of the problem, and is accelerating efforts to manage
Fourth, the Korean economy is going through a transitional period for its overall industrial structure. For instance, the country is reforming structures of its key industries, nurturing the service industry and developing newly-rising industries. In terms of the structural reform of key industries, the focus is being put on developing high value-added industries. Although the structural reform can reduce production in the short term, the high value-added industries will create much more value in the long term.
The government is also actively nurturing the service
industry and increasing its size.
Moreover, not only the government, but
corporations are actively looking for a
new growth engine. At the center of such
efforts is the fourth industrial revolution.
It is safe to say that no other country is more interested in this revolution than Korea, as the country is heavily investing in infrastructure.
In my view, the recent political scandal can serve as an opportunity for Korean society to make another leap forward, depending on how the Korean people respond to it. In the peaceful demonstrations staged in Gwanghwamun Square, we could feel the mature citizenship of the Korean people. The Korean people could act in such a way because they deeply care about their country and firmly believe that the country can overcome corruption to become a more transparent society. Rather than being outraged by the corrupt political circle, the majority of Korean people are calmly performing their role in their daily lives. In addition, all of society’s systems are functioning properly. This is proof that the Korean society and the Korean economy are healthy.
Some figures show that Korean economic situations will not significantly improve in 2017. However, the positive factors mentioned above can bring about a qualitative change to the Korean economy. I am certain that Korea will continuously make utmost efforts to overcome slow growth and restore economic vitality once again.