South Korean Government Looking to Achieve Better Economy Growth Rate Next Year

Dec 20, 2019

South Korean Government held an economy ministers meeting on the 19th and presented the direction of its economic policies for next year. Its goal for next year’s economic growth rate is 2.4%. To achieve this goal, it has put out reflation measures such as investment projects that will be worth $85.7 billion (100 trillion KRW). Some are suggesting that there needs to be fundamental measures such as increased level of contribution by the private sector towards economic growth rather than government-led financial measures.
◊Different views towards economic growth rate
South Korean Government predicts that next year’s economic growth rate will be at 2.4% that is a slight improvement from this year’s economic growth rate at 2.0%. It plans to develop driving forces through political effects such as recovery of the semiconductor industry and vitalization of investments and domestic demands.
“We have not increased our prediction on next year’s economic growth rate just from a political will.” said Vice Minister Kim Yong-beom of Ministry of Economy and Finance (MOEF) through a detailed briefing. “Our expectation for next year has become slightly higher than last month due to a settlement between the U.S. and China and an upward trend in composite leading indicator.”
South Korean Government is predicting that South Korea’s exportation industry, which had supported South Korean economy in the past, will be more improved next year compared to this year. It predicts that the amount of exports through customers will be 3.0% higher next year than this year as global trades, which had been slow, have started to become more active.
In addition, it estimates $59.5 billion of current account surplus for next year as exportation of semiconductors has recovered due to increased demands for memory semiconductors.
Regarding the job market, it estimates that next year’s average monthly increase in the number of new employees will be 250,000 people which is smaller than this year’s monthly average due to reduction in working age population.
It predicts 1.0% annual increase rate for the consumer price, which had brought up a concern for deflation this year due to prolonged low price, next year due to stoppage in reduction of oil tax and increased prices of agricultural products, livestock products, and marine products.
However, outside agencies predict lower economic growth rate than South Korean Government.
“Based on uncertainties that limit increased investments and continuous low price, we predict that next year’s economic growth rate will be around 2.1%.” said Hong Joon-pyo who is a researcher from Hyundai Research Institute.
◊South Korean Government to focus on increased investments and domestic demands
According to a survey done by KDI (Korea Development Institute) on 334 economists, 39.8% of them chose ‘breakthrough of current economic situation’ as the most important task again for the direction of South Korea’s economic policy for next year.
Industries are also mostly interested on what kind of incentives the government has prepared in order to induce corporate investments. As a result, South Korean Government is going to work on vitalizing investments and boosting domestic demands while focusing on economic rebound and improvement in growth potential.
First, it has decided to invest $85.7 billion (100 trillion KRW) into public and private sectors and private investment. It is going to invest $85.7 billion (100 trillion KRW) in private and public sectors and construct a petrochemical plant in Ulsan ($6.00 billion (7 trillion KRW)) and a complex shopping mall in Incheon ($1.11 billion (1.3 trillion KRW)).
In addition, it has plans to invest $8.57 billion (10 trillion KRW) into finding new private investments and $51.6 billion (60 trillion KRW) into public agencies for public housing, railroad, and highway.
To vitalize domestic demands, it is looking into refunding 10% of surtax of few items purchased on one day out of Korea Sale Festa led by the private sector. It is planning to carry out an assessment on economic feasibility of tax expenditure sometime during the first half of next year. In order to convert overseas spending into domestic consumption, it is going to expand duty free shops at arrivals to every major airport and also allow sales of cigarettes. Also, it is planning to hold ‘K-culture Festival’ twice a year in order to induce 20 million tourists.
As major institutions are predicting that conditions for exportation will be improved next year due to reasons such as the first settlement between the U.S. and China that took place last month, South Korean Government is looking into support measures to revive South Korea’s exportation industry.
It is going to prepare ways to resolve difficulties with 13 major exported items such as semiconductor, general machinery, and petrochemistry at the center and execute its plan to innovate the export market structure that was announced in September. It is going to provide $207 billion (240.5 trillion KRW) of export financing next year which is $19.8 billion (23 trillion KRW) more than this year’s export financing. Also, it is looking to execute 62% of next year’s budget, which is set at $439 billion (512.3 trillion KRW), during the first half of next year in order to maximize effects of the budget.
It has presented strengthened innovative driving forces, improvement in economic constitution, expansion of embracement, and preemptive actions against the future as the four directions for next year’s economic policies and set up 17 specific projects.
Its plans to increase use of DNA (Data, Network, Artificial Intelligence) and investments on major industries such as the manufacturing industry are the ones that attract most attentions.
South Korean Government is going to push for revision of three major data-related acts first and expand use of public data such as information on national tax. It has prepared “three packages” such as tax reduction and reduced administrative cost in order to promote investments in 5G mobile network.
It is going to provide tax reduction on construction cost for 5G network and push for revision of Radio Wave Act to reorganize the system for cost of using mobile network frequencies. It has decided to ease registration license tax on newly-constructed 5G radio stations and it is planning to introduce new registration license tax during the second-half of next year after going through an assessment on economic feasibility during the first half.
By the end of the first half of next year, it is going to announce its plan to convert regulations within the AI field into negative regulations.
It has also included $76.6 million (89.1 billion KRW) to next year’s budget to develop next-generation semiconductor technologies such as new low-power device and microfabrication process.
It is going to invest $3.44 billion (4 trillion KRW) annually into R&D on the bio-health field such as cutting-edge regenerative medical treatment and K-beauty until 2025. It is also going to establish a strategy to develop South Korea’s secondary battery industry by the end of the first half of next year to strengthen the industry’s competitive edge.
For the service industry, it is planning to establish “Smart Service’ project that focuses on process management, distribution management, and customer management through ICTs (Information Communication Technology) such as AI and big data.
In addition, it is going to include FinTech companies to the current group of small to midsize companies and venture companies that will be exempted from income tax and corporate tax (50 to 100%) for the next five years and it has decided to create an innovative fund for the FinTech industry.
To innovate regulations, it has decided to create more than 200 examples that are based on regulatory sandbox additionally next year. Also, it is going to announce its comprehensive plan to develop regulatory sandbox in January.
For the job market, it is going to put out supplementary measures for the issue of increased number of people who are in their 40s and without jobs that has been continuing for four years and it is planning to prepare employment policies for them during the first half of next year.
◊Experts wanting higher level of contribution from the private sector
Experts point out that it is difficult to revive South Korea’s economy that is slowly sinking without any fundamental direction for economic policies even with comprehensive measures set by South Korean Government for an economic rebound.
“Our economic policy is still based on income-led growth, fair economy, or innovative growth.” said Vice Minister Kim of MOEF during a detailed briefing that was held on the 17th. “However, we have continued policy outcomes such as inclusive growth.”
“In order for an economic team to achieve positive results, its leader needs to have a clear view and acknowledge errors and push for correction of trajectory of policies and structural reformation.” said one expert.
Some also point out that level of contribution by private companies towards economic growth needs to be higher by energizing markets rather than redistributing resources or transferring subsidies.
Between the first quarter and the third quarter of this year, percentages of contribution by the private sector and the government towards economic growth were 25% and 75% respectively.
“Excessive lead by the government is a problem when measures for vitalizing investments need to be permanent.” said Professor Kim So-young of Seoul National University’s Economics Department. “It is not appropriate for the government to decide where $21.5 billion (25 trillion KRW) of corporate investment project is spent.”
Staff Reporter Ryu, Jaehee |

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