As South Korea's economic team, led by Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol, marks its first anniversary, key achievements include economic recovery and inflation stabilization. However, analysts note that the growth is heavily reliant on the semiconductor boom, and the ability to adjust policies following the reorganization of economic ministries remains a challenge.
According to the Ministry of Economy and Finance on July 21, the government implemented policies to stimulate consumption and stabilize livelihoods in response to economic contraction caused by the initial martial law and increased external uncertainties. By distributing consumer recovery coupons and expanding fiscal spending, the government supported domestic demand, resulting in a 3.6% economic growth rate in the first quarter of this year. This growth rate is the highest among major OECD countries, with a quarter-on-quarter increase of 1.7%.
The government also assessed that the recovery in growth has improved its tax revenue base. The increase in corporate performance due to the recovery in growth has led to higher tax revenues, thereby expanding fiscal capacity. Domestic research institutions and foreign investment banks have subsequently revised their growth forecasts for this year upward, projecting a mid-2% range.
Managing consumer prices has also been highlighted as a significant achievement. The government implemented a maximum price system for oil for the first time in 29 years and reduced fuel taxes, which helped lower the rate of consumer price increases. The government analyzed that this led to a 0.6 percentage point decrease in consumer prices in March and a 1.2 percentage point decrease in April.
Additionally, a special task force led by the Deputy Prime Minister focused on managing essential living costs, including school uniforms, management fees, academy fees, and communication expenses. As a result, prices for certain processed foods, such as cooking oil, flour, and sugar, have shown a downward trend.
Building on this momentum, the Ministry of Economy and Finance plans to present a '3-4-5 Vision' for the second half of the year, aiming for a potential growth rate of 3%, becoming the world's fourth-largest exporter, and achieving a national income of $50,000. The government has identified semiconductors, artificial intelligence (AI) data centers, and physical AI as three major mega-projects to secure future growth drivers and enhance industrial competitiveness.
However, there are significant challenges ahead regarding economic policy. Concerns have been raised that this year's growth improvement is largely attributed to the strong performance of semiconductor exports rather than the effectiveness of government policies. There are fears that a slowdown in the semiconductor market could weaken growth again.
Unresolved issues such as high exchange rates and instability in the real estate market are also seen as potential risks. Fluctuations in raw material prices and exchange rates may increase due to changes in international circumstances, and ongoing regional disparities and price instability in the real estate market could hinder economic recovery.
The ability to coordinate policies following the reorganization of economic ministries will also be a key factor in future performance. There have been ongoing concerns that the separation of the Ministry of Economy and Finance into the Ministry of Economy and Finance and the Ministry of Planning and Budget has weakened policy connectivity. Therefore, how effectively Deputy Prime Minister Koo can coordinate policies between ministries will likely be a major evaluation criterion for the economic team in its second year.
* This article has been translated by AI.
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