Government Projects 3.1% Economic Growth Next Year... Experts Criticize as "Optimistic"

'Can't Travel Abroad but Duty-Free Allowance Abolished'... 'Rose-Colored Domestic Demand Boost' Ignoring Quarantine Situation

[Sejong=Asia Economy reporters Kim Hyun-jung, Son Seon-hee, Moon Chae-seok] The government has announced the 2022 economic policy direction, which includes a target of ‘3.1% economic growth rate’ and policies to revitalize domestic demand. Among macroeconomic experts, there are evaluations that it is ‘excessively optimistic without considering the quarantine situation.’ The government cited a rapid recovery centered on face-to-face service consumption as the basis for the 3.1% growth, but since the COVID-19 pandemic has already lasted nearly two years, it is difficult to predict its end. In particular, with the presidential election scheduled for March next year, the fact that various economic policies could be significantly revised when the next government takes office is also considered a major variable.

The main economic forecast indicators included in the government’s economic policy direction for next year are ‘3.1% growth in Gross Domestic Product (GDP), 2.2% consumer price inflation, and an increase of 280,000 in the number of employed persons.’ Professor Sung Tae-yoon of Yonsei University’s Department of Economics pointed out on the 21st, “(The government) seems to have prepared it quite optimistically,” adding, “Given the current economic situation, achieving growth in the 3% range is not easy.” He continued, “The measures are mostly focused on revitalizing consumption through large-scale fiscal spending, but there could be considerable constraints before face-to-face service consumption increases.”

The main domestic demand recovery support measures in next year’s economic policy direction include △special deductions (extended for one year) for credit card usage increases of more than 5% △new separate income deductions for increased consumption in traditional markets △raising purchase limits and expanding cashback payments for local love and Onnuri gift certificates △abolishing the duty-free purchase limit (USD 5,000).

However, many evaluations say that such consumption revitalization measures inevitably depend on quarantine measures. If strong social distancing continues as it is now, or if a possible fifth wave of the pandemic occurs, actual implementation is unlikely. For this reason, there is criticism that rather than consumption revitalization measures assuming ‘quarantine easing,’ measures applicable to the current reality should have been presented. Professor Kim Sang-bong of Hansung University’s Department of Economics pointed out, “How can people consume at duty-free shops when they cannot go abroad?” and added, “Since the COVID-19 situation has prolonged and consumption patterns are changing mainly online, online consumption promotion measures should have been introduced.”

The possibility that the government will significantly revise the economic growth rate forecast of 3.1% next year cannot be ruled out. The government has already significantly revised this year’s GDP growth forecast due to the COVID-19 situation. In the 2021 economic policy direction announced in December last year, the government forecast this year’s growth rate at 3.2%, but in June this year, it raised it by 1 percentage point to 4.2%. Then, just half a month before the end of the year, it lowered it again to 4.0%. This means that even the government found it difficult to foresee the situation in the unprecedented infectious disease crisis response.

There are also skeptical evaluations regarding the government’s inflation rate forecast of ‘2.2%’ for next year. Professor Kang Sung-jin of Korea University’s Department of Economics said, “The government’s forecast accuracy has been declining during the COVID-19 phase,” adding, “Ultimately, it is close to a target the government wants to show it can achieve.” The government initially forecast this year’s inflation at ‘1.1%’ (December 2020) but has now significantly revised it to ‘2.4%.’

Criticism has also been raised about the government maintaining an expansionary fiscal stance while expecting a ‘recovery phase’ next year. Professor Kang said, “During the COVID-19 period, opposition to expansionary fiscal policy was impossible, but (from next year onward) the government should have emphasized ‘market expansion,’ but it went in the opposite direction.” He added, “Even during the COVID-19 phase, economic growth was led by trade and exports,” criticizing, “Compared to the scale of fiscal spending by the government, domestic demand-centered economic growth ultimately did not produce results.” Above all, with the presidential election scheduled for March next year, this economic policy direction is effectively labeled as a ‘three-month plan.’ There is criticism that there is little change in content compared to last year’s economic policy direction, which was launched under the slogan of ‘fast and strong economic recovery.’ Along with this, looking back at the economic policies of the Moon Jae-in administration over the past five years, despite large-scale fiscal spending, there is an evaluation that structural long-term policies such as low birthrate and aging showed insufficient results. Professor Sung said, “It is difficult for the current outgoing economic team to present policy directions after the presidential election,” adding, “Most policies are focused on ‘management’ and inevitably repeat what has been presented in the past.”

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