The economic downturn could weaken. The government is focused on reviving the economy through a recovery in exports. As part of economic policy for the second half of the year, the government will focus on reviving the economy, stabilizing the public economy and improving economic fundamentals.
The focus is on export and investment promotion. Returning high-tech companies are promised incentives that at least match foreign investors. To support the industry, revisions to risky enterprise laws will be sought, and more emphasis will be put on boosting the domestic economy, including regional ones. Taxes on the succession of family businesses will be relaxed further. Adult children would be exempt from inheritance tax for up to 50 million won (US$38,431) to ease their marriage. Political measures are being taken to alleviate the ongoing rental crisis. It will also relax lending requirements for a year to help landlords pay back the lump sum deposits (jeonse) they owe their tenants. However, the draft lacked strong deregulations or measures to encourage women’s participation in economic activities in view of the economy’s long-term growth potential.
The government has been more aggressive in stimulating the economy as prices have stabilized faster than expected. The increase in consumer prices in June compared to the same period of the previous year was below 3 percent for the first time in September 2021, in January it was well below 5.2 percent.
Despite the relief on the inflation front, the government has clouded its economic outlook. The Ministry of Economy and Finance is forecasting GDP growth of 1.4 percent this year – down from the 1.6 percent estimated in December – on the back of sluggish exports in the first half of the year due to the poor external environment. Nevertheless, the economic development is showing positive signs. The estimated growth of 0.9 percent in the first half of the year should accelerate to 1.8 percent in the second half of the year. The government forecasts growth of 2.4 percent for the coming year.
Despite some optimistic signs, there are many dangers in the Korean economy. Above all, there is no telling when the war in Ukraine will end and how volatile the global supply chains will become as a result of the confrontation between the USA and China. Another risk is the US interest rate hike, which could continue in the second half of the year. Korean politics could be embroiled in a populism contest ahead of next April’s general election. The economic outlook can change at any time. Growth is only possible if external and internal conditions improve. Voters must elect politicians who prioritize reviving the economy. The Democratic Party must support the government’s policy bill to get the economy back on track.
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