[Inside Chodong] National Income Rebounds, But Why Don't People Feel It?

After a long time, there was welcome news amid the struggling South Korean economy, which has been facing warnings of having entered 'Peak Korea.' The news is that the Gross National Income (GNI) per capita, an indicator of the people's living standards, has rebounded. The Bank of Korea estimates the 2023 per capita GNI to be in the mid-$33,000 range. According to this analysis, it is certain to increase by at least several hundred dollars compared to $32,886 in 2022.

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So, has our life become more comfortable than in 2022? Very few would answer 'yes' to this question. This is because the background of the rebound in national income itself is far from the economic situation. The nominal per capita GNI change depends on variables such as real GDP growth rate, GDP deflator (overall price level), exchange rate, and population. The factor that led to the rebound in national income last year was the more stable exchange rate compared to the previous year. On the other hand, the other pillar of national income, economic growth rate, was only 1.4%. Despite the absence of major crises shaking the entire economy, such as the foreign exchange crisis or the global financial crisis, last year was the first time the growth rate recorded in the 1% range annually.

How about inflation? Of course, it improved according to indicators. The consumer price inflation rate, which was 5.1% in 2022, dropped sharply to 3.6% in 2023. However, no citizen actually feels this improvement. Although the overall inflation rate slowed to 3.6%, food prices closely related to our daily lives rose by as much as 5.6%. Contrary to the statistical indicator showing an increase in national income compared to the previous year, the lives of individual citizens have become more difficult.

There is another problem. The government's ability to respond falls short of expectations. The government has yet to provide a clear explanation of why our economy was sluggish last year. The government's analysis is that it was the result of high inflation, high interest rates, and the semiconductor market downturn. However, under similar trade conditions, the United States recorded an annual growth rate of 2.5% last year. There are also forecasts that Japan will surpass South Korea. While the much larger economies of the U.S. and Japan showed growth in the 2% range, the government has not accurately identified the reasons why only South Korea has fallen behind, so no proper remedy can be expected.

Choi Sang-mok, Deputy Prime Minister for Economy and Minister of Economy and Finance, is delivering opening remarks at the '2024 Economic Policy Direction Joint Briefing of Related Ministries' held at the Government Seoul Office Building on the 4th. The government forecasted that the Korean economy will grow by 2.2% this year. Photo by Jo Yong-jun jun21@

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The government expects this year's economic growth rate to be 2.2%. The government believes it will improve compared to last year as exports, centered on semiconductors?the largest export item?are recovering. However, the economic recession from last year is still ongoing. The Bank of Korea's Business Survey Index (BSI) for January fell by 1 point from the previous month to 69. The export growth trend has also slowed. Domestic demand is even gloomier. Due to prolonged high inflation, high interest rates, and astronomical household debt, people are tightly closing their wallets. At this rate, it will be difficult to escape the low-growth trend this year as well. Now more than ever, the role of fiscal policy as a catalyst for economic recovery is needed.

However, the government is still firmly stating that it has no intention of mobilizing fiscal resources for economic stimulus. Instead, it has pulled out various tax reduction policy cards such as abolishing the financial investment income tax and tax benefits for Individual Savings Accounts (ISA). This means the government intends to revive the economy through tax cuts that can have similar economic stimulus effects rather than heavy fiscal spending. But since these measures were taken under unfavorable tax revenue conditions, they contradict the sound fiscal policy the government emphasizes.

The 'three major structural reforms' in labor, education, and pensions, which have been forgotten amid populist pledges, must also be actively promoted. Of course, shouting for structural reforms ahead of the general election may not be popular. Still, if we want to revive the economy, this is the only way.

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