K-shaped indicators confirmed in various places... Polarization may widen further

Financial Industry Grew 8.1% Last Year, Culture and Transportation Shrank 15-16%
Employment and Real-Financial Gap Widen... Rich Get Richer, Poor Get Poorer

[Asia Economy Reporter Kim Eunbyeol] Although the Korean economy is expected to achieve growth in the 3% range this year, overcoming COVID-19, projections indicate that the 'K-shaped recovery (polarization)' will become even more pronounced. The varying recovery speeds across industries are affecting employment and consumption, raising concerns that economic recovery and polarization will form a proportional relationship.

Continued Rich-Poor Divide by Industry... Possibility of Restructuring

According to the Bank of Korea's GDP statistics for last year released on the 29th, GDP by economic activity showed significant disparities across industries. The finance and insurance sector produced a value added of 111.7721 trillion won (based on 2015 chain prices) last year, growing 8.1% compared to the previous year (103.3862 trillion won). This is double the 2019 growth rate (4.4%). The industry expanded due to a surge in the stock market and a sharp increase in bank loans. Real estate (1.5%) and information and communication (1.4%) sectors also grew.

On the other hand, the production value of the culture and other services sector fell by 16.5% to 34.8085 trillion won. The transportation industry shrank by 15.9% as travel was halted. Wholesale, retail, accommodation, and food services, which repeatedly suspended operations, contracted by 5.8%. Manufacturing declined by only 1.0% last year, but exports of semiconductors and electric vehicle batteries revived in the second half, suggesting rapid growth this year.

The 'rich-get-richer, poor-get-poorer' phenomenon in industries may worsen. Professor Kim Soyoung of Seoul National University’s Department of Economics said, "Until COVID-19 ends, losses in struggling industries will accumulate, and some may go bankrupt. While additional shocks to manufacturing are unlikely, losses in the service sector will increase." The post-COVID industrial structure may change, with existing industries dying out and IT or high-tech industries growing significantly. Fundamental perceptions of face-to-face services such as travel and culture are changing, leading to industry contraction and workforce reductions. This phenomenon leads to employment disparities.

*Statistics Korea, Korea Exchange
*December 2019=100
*◆ indicates the point at which recovery reached the pre-crisis level

K-shaped Employment Recovery... Gap Between Real Economy and Asset Markets Widens

The employment recovery gap between non-regular workers (temporary, part-time, self-employed) and regular workers is already noticeable. Sean Roach, S&P Asia-Pacific Chief Economist, showed the K-shaped employment recovery gap by occupation at a joint seminar with NICE Credit Rating on the 27th, pointing out that "when employment recovery is properly achieved, consumption revives, enabling growth in the 3% range." Using Statistics Korea data, S&P compared employment before COVID-19 (December 2018=100) and found that regular employment remained above 100 last year and has risen to 105, while non-regular employment still lingers around 97.

A Bank of Korea official said, "Even during the foreign exchange and financial crises, employment took longer to recover," and predicted, "Recovery trends will vary depending on education levels."

Globally, the money injected into the economy has flowed into asset markets, widening the gap between the real economy and asset markets. Comparing the coincident composite index and the KOSPI index (end of 2019=100), the KOSPI had already recovered to pre-COVID-19 levels by July last year and rose to 140, while the coincident composite index remains below 100. Last year, the economic growth rate was -1.1%, indicating a contraction, whereas the KOSPI rose by 40%.

The asset gap between upper and lower groups is also widening. At the end of March last year, the 'net asset quintile ratio' comparing the top 20% and bottom 20% was 166.64 times, up 41.04 points from the previous year (125.60 times). The rapid rise in stock and real estate markets in the second half of last year is expected to have further increased the asset ownership gap.

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