OPINION: Stock market is roaring, and now for the economy

South Korea’s stock market is roaring ahead. After the Kospi’s long rally, the Kosdaq has regained momentum, settling above 1,000 for the first time in 25 years. Once dismissed as a speculative sideshow, the junior market is now part of what investors are calling a new era of “Kospi 5,000, Kosdaq 1,000.” 

Yet the real economy is moving in the opposite direction. 

Production has weakened, investment has fallen and domestic demand remains sluggish. Last year’s gross domestic product barely grew 1%, even after the government distributed 13 trillion won in consumption coupons. The unrounded figure — 0.97% — was effectively zero. In the fourth quarter, just as semiconductor shares powered the Kospi higher, the economy posted a startling 0.3% contraction. 

It was one of the weakest performances in South Korea’s modern history. 

Only a handful of years have recorded worse results: the 1998 foreign exchange crisis (-4.9%), the oil-shock recession of 1980 (-1.5%), and the pandemic slump of 2020 (-0.7%). Growth in the 0% range had occurred only twice before — in 1956 after the Korean War and in 2009 during the global financial crisis — until last year joined the list. 

The contrast could hardly be sharper. 

Exports surpassed $700 billion, making South Korea only the sixth country in the world to do so. Stock prices are setting records. Investor sentiment is exuberant. Yet for households and small businesses, the economic mood remains wintry. 

The gap is largely explained by semiconductors. Information technology manufacturing alone contributed 0.6 percentage points to growth last year. Without the chip boom, growth would have been closer to 0.4%. Few advanced economies display such extreme heat and cold at the same time. 

The comparison with the United States is equally sobering. 

The U.S. economy grew 2.9% in 2023 and 2.8% in 2024 and remained near 2% last year. With the United Nations projecting global growth of 2.7% this year and U.S. growth of 2.0%, the reversal in fortunes that began in 2023 may extend into a fourth year. 

That an economy 16 times larger than South Korea’s is growing faster raises uncomfortable questions about Korea’s dynamism and long-term vitality. 

America’s resilience, despite weak hiring and slowing consumption, rests on massive corporate investment in advanced industries — artificial intelligence, semiconductors and robotics — led by companies such as Nvidia, Google, Apple, Microsoft and Amazon, and reinforced by deregulation and tax incentives. 

South Korea cannot rely on tariffs to lure investment. Its only durable option is to make its business environment more attractive than that of its competitors — not only to attract foreign firms, but to keep domestic champions from drifting abroad. Balanced growth matters, but companies that drive production and investment remain the engine of any economy. 

Looking ahead, the Bank of Korea and major research institutes forecast growth of about 1.8% this year. The government, calling 2026 “the first year of a great leap forward,” has set a higher target of 2.0%. It plans to deploy a 727.9 trillion won budget and 634 trillion won in policy financing, betting that stronger domestic demand and exports can revive momentum. 

With this year marking the effective start of the Lee Jae Myung government, hopes for a rebound are understandable. But history shows that growth driven mainly by money has limits. Artificial spurts often breed bubbles — and bubbles, inevitably, burst. 

The deeper problem lies elsewhere: potential growth. 

In an open, trade-dependent economy, record exports should translate into broader expansion. When they do not, it signals a decline in the economy’s underlying capacity to grow. 

South Korea’s potential growth was near 5% in the early 2000s. Aging, weak corporate investment and slowing productivity were left largely unaddressed. As a result, potential growth slipped to around 3% in the 2010s, to the mid-2% range in 2016–2020, and is now estimated in the high-1% range. 

An economy with 1% potential growth is like a teenager whose growth plates are closing. Expecting rapid expansion under those conditions is like hoping to raise exam scores through shortcuts instead of study. It is no surprise that South Korea has not exceeded 3% growth since 2021. 

Successive administrations bear responsibility. Each focused on near-term indicators while postponing structural reform. “Potential growth fell by about one percentage point with each change of government,” the author notes — a  belated and regrettable realization. 

The Korea Development Institute warns that without reform, potential growth could approach zero in the 2040s. A stagnant economy would mean shrinking tax revenues, heavier welfare burdens and mounting fiscal stress, ultimately leaving households more vulnerable. 

Even if money floods into stocks and exports remain in the “$700 billion club,” this structural constraint does not disappear. Recognizing it is the first step toward rebuilding a viable growth path. 

If growth reaches 1.8% this year, it would already be near potential — a respectable outcome under current conditions. Pushing harder through excessive stimulus risks inflation, fiscal strain and rising debt, while creating an illusion of strength. Paradoxically, today’s buoyant markets make this the best moment to pursue reform. 

The Lee government’s “3-3-5 vision” — becoming a top-three AI power, restoring potential growth to 3%, and entering the G5 — correctly places potential growth at the center of policy. Unlike quarterly GDP figures, it offers little immediate political reward. Its benefits emerge slowly. But without it, escaping the low-growth trap is impossible. 

Execution will determine success. Regulations that block experimentation must be dismantled. Advanced industries and innovative firms must be nurtured. Labor-market dualism must be reformed to lift productivity. Policy and legislative mismatches must be reduced to create a predictable environment. Even debates over the “Yellow Envelope Act,” set to take effect in March, should be judged by one standard: whether they raise potential growth. 

In the mid-to-late 1980s, South Korea often grew by more than 10%, generating jobs and near-full employment. That era will not return. But restoring “normal” growth would ease chronic problems — job shortages, declining job quality and weak consumption. 

Three percent is the dividing line between stagnation and renewal. 

Lee has likened achieving a Kospi 5,000 to revitalizing neglected valleys during his time as a provincial governor, arguing that “normalizing real estate is easier and more important,” and that reforms succeed when leaders accept criticism without calculating votes. If policy is guided by necessity rather than political advantage, restoring potential growth to 3% is difficult — but achievable. 

A government that reaches Kospi 5,000 and a government that lifts potential growth to 3% may both claim success. But in durability and impact on livelihoods, the latter would be the far greater achievement. 

 

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