South Korea’s GDP grew at rates that represented an 11-year high in 2021,but experts fear this success may not last long as recovery from the Covid-19 pandemic has been uneven. Its economy is currently the fourth-largest in Asia and it is currently being boosted by soaring real estate prices and highly active stock market trading. However, analysts believe that underlying economic issues may undermine this boom.
South Korea’s Economic Growth Is Uneven
During the pandemic, South Korea was praised for not having fallen into an economic slump like most of the world. Even though it eventually bowed to the pressure of the pandemic, it quickly reported a sharp recovery after contracting by 0.9%.
A rise in exports and construction activity have helped South Korea’s economy grow at its fastest pace in over a decade in 2021. Recent data shows that the country’s main driver of growth during the fourth quarter of 2021 was its exports, which increased 4.3% on-quarter. However, not all sectors experienced this economic boom. Industries that were hit particularly hard by the pandemic, such as leisure, restaurants, leather goods and shoes, accommodation service providers, and tour agencies have experienced slow recovery. In addition, capital investment is down. Jobs continue to disappear across the service and manufacturing sectors as President Moon Jae-in's promise to create jobs fails to come into fruition.
The global demand for made-in-Korea products will likely continue, while expanded government spending is expected to boost consumption over 2022, although some analysts fear that it is not enough to continue to fuel South Korea’s economic growth.
Will South Korea Follow in the Footsteps of Japan?
South Korea may be following in the footsteps of Japan as its working-age population continues to shrink, just as Japan’s did in the 1990s. Moreover, financial risks are currently emerging in South Korea that mirror those that plagued Japan in the 1980s. As a result, the country may face economic difficulties for decades, as Japan did when its stock and land bubbles burst, forcing the country into its "lost" decades.
Experts have become increasingly concerned that South Korea’s rising real estate prices and overheated stock market in conjunction with rising household debt are replicating the economic bubble Japan experienced, which may eventually lead to a similar economic crash.
South Korea’s financial authorities have thus made moves to prevent this scenario from becoming a reality. In September of 2021, authorities requested that local banks limit the number of unsecured loans they issue. In March 2021, total household debt reached a new high of $1.51 trillion, a 9.5% increase over the previous year. The goal of the strategy implemented by the financial authorities was to cap the worsening household debt to prevent a potential economic crash.
Hope for the Future
There is hope that South Korea will avoid the potential of an economic crash and maintain its status as an increasingly important economy. Following rapid growth and global integration, South Korea has become renowned for its high-technology, led by sectors such as electronics, telecommunications, and automobile production. There is hope that this will continue into the future.
Learn More with EXIMA
Found this article informative? Check out the rest of our blogs for more!