Hong Nam-ki "Laying the Groundwork for a Rebound" Academia "Limits of Fiscal-Led Growth"

Hong "Psychological Marginal Line Maintained"... Optimistic Outlook on Economic Growth

Export Decline Continues This Year

Experts "2.4% Achievement Uncertain"

[Image source=Yonhap News]

[Asia Economy Reporters Kwangho Lee and Sehee Jang] The government attributed significance to maintaining the psychological margin line as the domestic gross domestic product (GDP) growth rate recorded 2.0% last year. Despite the lowest economic growth rate in a decade, it expressed optimism, stating that the growth trend is improving as the second half of the year progresses. However, experts pointed out the limitations of fiscal-led growth and said that achieving the 2.4% growth rate target set by the government this year is uncertain.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, attended the 3rd Materials, Parts, and Equipment Competitiveness Committee held at Gyeongin Yanghaeng in Incheon on the 22nd and said, "Maintaining 2.0% is protecting the market's psychological margin line."

Deputy Prime Minister Hong stated, "There had been skeptical views in the market about achieving 2.0%, along with concerns about the entrenchment of low growth below 2.0%, but through growth in the 2% range, these market concerns were blocked, and I believe this will serve as an opportunity to gain confidence in laying the groundwork for an economic rebound." He added, "Looking back over the past year, we managed a reasonably good performance in the three major indicators representing the national economy: a V-shaped rebound in employment, a shift toward improved distribution trends, and maintaining a growth rate in the 2% range."

Deputy Prime Minister Hong noted that the 1.2% growth in the fourth quarter of last year was the highest growth rate in nine quarters since the third quarter of 2017 (1.5%), expressing optimism that "growth is improving as the second half progresses." In particular, he emphasized, "Private investment, which had been declining for six consecutive quarters, turned to positive growth compared to the previous quarter for the first time in seven quarters due to improvements in facility investment," and stressed, "It is more important than anything else to maintain this positive momentum going forward." He also reiterated that although the 2.0% growth fell short of expectations, South Korea ranked second among the 3050 Club countries (with a national income of $30,000 and a population of 50 million) and fifth among the Group of Twenty (G20) major economies.

Deputy Prime Minister Hong added, "As the saying goes, the economy is psychology. Now, the important thing is for all of us to have confidence in the economic flow and recovery, and to once again put all our efforts into spreading the momentum of the economic rebound and ensuring definite change." He particularly emphasized, "This year, through a 100 trillion won investment project, an era of 20 million inbound tourists, and the spread of the second venture boom, we will go all-in on revitalizing private sector vitality and the dynamism of our economy, and we will do our best to achieve 2.4% growth this year."

The government has set this year's growth target at 2.4%, which is 0.39 percentage points higher than last year's 2.01%. This is based on the expectation that investment will be activated, domestic demand will increase, and exports, which had been declining, will improve.

However, there is a significant gap between the government and the market. The government's optimistic outlook has repeatedly lowered growth rate forecasts every year, and despite these misjudgments, the government blamed external factors rather than policy mistakes. This is also analyzed as the reason why private research institutions as well as national research institutes have issued opposite evaluations this year. Experts also point out that the rosy outlook is unrealistic.

In fact, although some uncertainty was lifted by the Phase 1 US-China trade agreement, risks in the external environment remain, such as the possibility of trade disputes reigniting at any time. There is also the possibility of a US-European Union (EU) trade dispute instead of the US-China trade conflict. In particular, exports have continued to decline this year. According to the Korea Customs Service, exports from the 1st to the 20th of this month amounted to $25.7 billion, down 0.2% ($40 million) from the same period last year. If the decline continues until the end of this month, exports will have fallen for 14 consecutive months since 2018.

Experts say the government's view is too optimistic. Professor Shin Se-don of the Department of Economics at Sookmyung Women's University said, "With private consumption declining, achieving 2.4% growth will be difficult," adding, "Exports are becoming a factor that eats into growth as they worsen, and with exports down, facility investment dies. If a global crisis spreads, the growth rate could be threatened not only to fall below 2% but even below 1%." Professor Lee In-ho of the Department of Economics at Seoul National University also said, "Growth should come from the private sector, but it seems the government will try to drive the economy through fiscal spending," expressing regret, "The government cannot keep growing the economy with money forever."

An academic source who requested anonymity criticized, "The current government is closing its ears to private sector demands and selectively packaging only good figures as policy achievements," and urged, "It is time to acknowledge policy failures and comprehensively revise the course."

This content was produced with the assistance of AI translation services.