South Korea's economy is showing promising signs, with projections indicating that this year's nominal Gross Domestic Product (GDP) growth rate could reach the 10% range for the first time since 2002. This surge is attributed to rising semiconductor export prices and strong export performance, significantly boosting the nominal size of the South Korean economy. The Bank of Korea has recently revised its real growth forecast for this year from 2.0% to 2.6%. The current account surplus forecast has also been significantly raised to around $250 billion.
As nominal GDP increases, the ratios of household debt and national debt to GDP are expected to decrease. If nominal GDP grows by 10%, estimates suggest that the household debt ratio could fall to the low 80% range. A growth of 12-13% could bring the government closer to its target of an 80% debt ratio by 2030.
This is undoubtedly a positive signal. The two burdens that have weighed on the South Korean economy have been household debt and national debt. Household debt dampens consumption and heightens financial instability, while national debt becomes a burden for future generations. Improvements in these indicators would positively impact the economy's resilience.
However, one must critically assess whether this nominal growth is a result of structural improvements in the South Korean economy or merely a temporary illusion created by the semiconductor boom.
Nominal GDP reflects both real growth and price factors. Even if the same quantity is sold, an increase in export prices will lead to a larger nominal GDP. A significant portion of the expected double-digit nominal growth stems from rising semiconductor prices and strong exports. While semiconductors are indeed a backbone of the South Korean economy, the semiconductor cycle has historically alternated between booms and busts.
Thus, a decrease in the household debt ratio does not signify the end of the household debt problem. The effect of a larger GDP lowering the ratio is substantial. The actual scale of debt, repayment burdens, real estate prices, and interest rate conditions must continue to be managed. The same applies to the national debt ratio. While nominal GDP growth may improve the ratio, without reforming the expenditure structure, fiscal burdens could increase again.
Just because a health check shows an increase in height and a lower body mass index does not mean weight loss has occurred. The same principle applies to the economy. The focus should not only be on improving ratios but also on enhancing the underlying structure.
South Korea's structural challenges remain significant. Issues such as low birth rates, an aging population, a declining working-age population, an oversupply of self-employed individuals, a lack of competitiveness in the service sector, and youth unemployment persist. The semiconductor boom will not automatically resolve these problems.
In fact, the more prosperous the period, the more urgent the need for reform. If tax revenues increase and fiscal capacity improves, it is crucial to invest in future industries and talent development, such as AI, semiconductors, biotechnology, robotics, and aerospace, rather than diverting funds to short-term expenditures. While today's semiconductors have revitalized the South Korean economy, tomorrow's growth drivers must emerge from AI and new industries.
Achieving a nominal growth rate in the 10% range for the first time in 24 years is undoubtedly an opportunity. However, this opportunity will not become a blessing on its own. It is essential to decide whether to squander the time gained from semiconductors or to invest it in preparing for the future.
A positive signal has been lit. However, we must not let go of the steering wheel. Reforming during prosperous times, investing during booms, and preparing for the future are the fundamentals, principles, and common sense of economics.
* This article has been translated by AI.
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