Economic Recovery Differentiation + Debt Risks... 9 Key Economic Issues for the Second Half of the Year

[Asia Economy Reporter Kim Hyewon] Amid the global economic rebound trend in the second half of this year, it has been diagnosed that the economic growth gap between countries will widen further due to differences in quarantine environments such as the distribution of COVID-19 vaccines. Domestically, the differentiation in economic recovery by income, age, and between domestic demand and export industries is expected to deepen. With the U.S. tapering (asset purchase reduction) and domestic interest rate hikes within sight, warning signs have been raised for financial risk management due to the surge in public and private sector debt and deteriorated fiscal soundness during the COVID-19 response process.

The Hyundai Research Institute identified nine issues that are likely to be prominent or sustainable domestically and internationally in the second half of 2021 through its economic weekly report titled 'Domestic Economic Issues in the Second Half of 2021' published on the 30th, and urged the preparation of countermeasures.

For overseas issues, five were presented: ▲ widening global growth gap ▲ advent of a new Cold War era ▲ increased possibility of tapering ▲ controversy over a raw materials supercycle ▲ the Fourth Industrial Revolution entering daily life.

Hyundai Research Institute predicted that the growth gap between countries will further widen as differences in the speed of economic recovery arise based on COVID-19 quarantine conditions. It also anticipated that as the conflict patterns between the U.S. and China diversify and prolong, the burden on countries highly dependent economically on both the U.S. and China will increase. There are concerns that South Korea, Japan, and Vietnam will not be free from downside economic factors such as increased economic uncertainty and pressure to choose between the two.

The growing possibility of the U.S. Federal Reserve (Fed) gradually reducing the scale of quantitative easing through tapering is also a burden. If discussions on reducing U.S. quantitative easing intensify in the second half of this year, it could cause shocks in asset markets due to the outflow of global liquidity from emerging markets.

Recently, international raw material prices have risen sharply, sparking debate over entering a supercycle. However, Hyundai Research Institute judged that factors such as monetary policy normalization and the resumption of U.S. shale oil production will act as downward price pressures, limiting the long-term upward trend. The accelerated pace of innovation in key new technologies related to the Fourth Industrial Revolution and the faster adaptation speed of people due to COVID-19 is a trend worth noting.

For domestic issues in the second half of this year, the institute pointed out ▲ differentiated economic recovery ▲ emerging risks of a debt economy ▲ the dawn of ESG (Environmental, Social, and Governance) management ▲ and RENEW inter-Korean economic cooperation.

Recently, domestic investment and export recovery and expectations for private sector economic recovery have increased, but it is diagnosed that differentiation by income, age, and between domestic and export industries is intensifying. Additionally, Korea’s significant increase in national debt due to expanded fiscal spending in response to the COVID-19 crisis and the large growth in private sector debt are highly likely to act as risks hindering future economic growth.

Regarding ESG management, which has emerged as a core global issue, Hyundai Research Institute judged that ESG will become an important metric not only for investors' decision-making but also for national credit rating evaluations, making active responses at both corporate and national levels necessary. Lastly, with signs of improvement in inter-Korean and North Korea-U.S. relations following the South Korea-U.S. summit, cautious expectations for the resumption of inter-Korean economic cooperation were also listed as an issue to consider in the second half of this year.

Joo Won, Director of Economic Research at Hyundai Research Institute, emphasized, "To sustain the economic rebound in the second half of this year, it is necessary to establish a virtuous economic cycle structure and to implement proactive economic response policies while monitoring the resurgence of COVID-19 and economic trends." He added, "Active measures to mitigate the rising trend of government and private sector debt and continuous efforts to improve the qualitative structure of debt to prepare for the shock of interest rate hikes are required," and said, "International cooperation to prevent the spread of protectionism and efforts by companies to enhance export competitiveness are also necessary." Finally, he stated, "It is important to make good use of the results of the South Korea-U.S. summit and to strive for the priority resumption of previously promoted projects such as Mount Kumgang tourism and the Kaesong Industrial Complex through continuous dialogue and consultation with the U.S. and North Korea, and to seek the development of a peace economy model through gradual expansion of inter-Korean economic cooperation."

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