Economic indicators are strong... but rising prices make it hard to feel the improvement

Record High National Income and GDP Forecast
4% Growth Expected This Year
Experts Cite "Consideration of Last Year's Negative Growth"
Growth That Citizens Can Feel Is Important
Potential Growth Rate Must Be Increased

[Asia Economy Reporter Jang Sehee] Although there is a growing possibility that this year’s Gross National Income and nominal Gross Domestic Product (GDP) will reach record highs, there are concerns about a gap between these figures and the economic conditions felt by the public. Experts point out that considering the continuous decline in the economy’s fundamental strength, the potential growth rate, efforts should focus on improving the economic structure and restoring the public’s perception of the economy.

◆Growth Thanks to Exports... "Need to Raise Perceived Economic Conditions"= Experts evaluated the forecast that the Korean economy will grow by 4% this year, doubling in size compared to 15 years ago, by taking last year’s negative growth into account. Considering last year’s negative growth, the actual growth is around 2%, making it difficult for people to feel the economic growth firsthand. Professor Sung Tae-yoon of Yonsei University’s Department of Economics said, "It is hard to place much significance on nominal GDP surpassing 2000 trillion won," adding, "It is more important to create growth that the public can actually feel rather than just focusing on visible indicators."

Professor Ahn Dong-hyun of Seoul National University’s Department of Economics evaluated the increase of more than $3,000 in per capita National Income (NI) compared to last year by saying, "The performance of companies like Samsung Electronics and Hyundai Motor has improved thanks to strong exports," but he also mentioned that the record-high inflation must be considered. Even if income increases, disposable income, which is the surplus money, may remain stagnant or even decrease because prices have risen accordingly.

In this regard, the Ministry of Economy and Finance has set next year’s consumer price inflation rate at 2.2%. Professor Kim Tae-gi of Dankook University’s Department of Economics stated, "While economic indicators appear favorable, rising housing prices and inflation are causing the perceived economic conditions to worsen." Regarding per capita National Income, he added, "The population growth rate is much lower than the GDP growth rate," emphasizing, "Long-term population policies should be considered to raise national income."

◆To Reach $40,000, Medium- to Long-Term Growth Must Increase= Since per capita National Income surpassed $30,000 in 2017, it took four years to increase by another $5,000. However, considering the continuous decline in medium- to long-term growth rates, it may take even longer to add another $5,000 in income. This is due to decreasing labor force caused by low birth rates and aging population, along with declining productivity.

Experts express serious concern over the decline in potential growth rate. Labor, capital, and productivity?all components of potential growth rate?are not expected to rebound significantly. According to the Organisation for Economic Co-operation and Development (OECD), Korea’s potential growth rate was 2.35% this year but is projected to fall to the 0% range by 2046. It is expected to plunge to -0.08% by 2060. Bank of Korea Governor Lee Ju-yeol also stated, "Our country’s potential growth rate is estimated to have dropped to around 2% this year and next," adding, "We previously estimated the potential growth rate at about 2.5% in 2019 and 2020, but it has significantly decreased."

Professor Lee In-ho of Seoul National University’s Department of Economics said, "The parts that declined due to COVID-19 will recover during the restoration process, but the trend of declining potential growth rate will reduce the overall vitality of the economy," adding, "A comprehensive restructuring of industries is needed, including the increase of low-productivity service sectors and technological innovation in manufacturing." He emphasized, "Regulations should be eased to strengthen industrial competitiveness as well."

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