S. Korea all out to escape slow growth trap in 2020

Facing continuing external challenges and structural problems next year, South Korea vowed to add speed to innovation and investment, determined to edge its way out of prolonged slow growth.

Pinning its hopes on a global economic uptrend, progress in US-China trade tensions and recovery of the chip business, the government forecast that Asia’s fourth-largest economy will achieve 2.4 percent growth next year, while its inflation will recover to around 1 percent, despite market skepticism.

“Our economy has faced several challenges throughout 2019. Growth and trade hit the lowest level since the (global) financial crisis and downside risks have expanded from our initial expectations,” Deputy Prime Minister and Finance Minister Hong Nam-ki said Thursday in an economy-related ministers’ press briefing.

“2020 offers us both opportunities and risks, so it is crucial at this point in time to optimize opportunity factors and control risk factors in order to lay the grounds for the economy’s rebounding momentum.”

As positive factors, the chief fiscal policymaker cited the upturn in the global economy and semiconductor industry, as well as the latest “phase one” trade deal between the US and China.

The International Monetary Fund, in its revised economic outlook in October, forecast that the world economy will gain 3.4 percent next year, up from the estimated 3 percent this year. The chip industry will see total profits climb 5.9 percent, according to World Semiconductor Trade Statistics.

Seoul’s expansionary fiscal policy will be another boost for the domestic economic upturn next year, according to the ministry. The fiscal spending total is expected to reach 512.3 trillion won ($439.8 billion) in 2020, up 9.1 percent from this year.

Under such a perspective, the government unveiled the economic policy directions for next year, placing emphasis on three pillars -- revitalizing investment, securing new growth momentum and expanding social protective measures for vulnerable economic groups.

“We have placed top priority on recovering investment, which is the key factor in the economy’s rebounding momentum,” First Vice Minister Kim Yong-beom explained in an advance press briefing held Tuesday.

The government’s target is to discover and execute 100 trillion won in new investment projects in the private and public sectors combined.

Seeking to promote tourism and encourage consumer sentiment, it vowed to expand visa benefits and other administrative incentives for inbound travelers, with its goal set at raising the number of foreign tourists to 20 million per year.

The volume of export financing will be raised to 240.5 trillion won, up 23.5 trillion won on-year.

Weighing heavily upon Seoul’s policymakers is the stalled domestic market and sluggish pace of innovation.

“We will improve the data-related laws and enhance investment to discover new growth businesses such as system semiconductors, bio and future vehicles,” Kim said, vowing to kick off a pangovernmental structural innovation task force within next year. 

On the back of the incoming policies and budget spending, the government suggested that the economy will expand 2.4 percent on-year in 2020, up from the estimated 2 percent this year. The inflation forecast was set at 1 percent, up from the estimated 0.4 percent this year.

“The 2.4 percent forecast (for next year) reflects our urgent policy drive to bail out of the slow growth phase which has weighed down upon our domestic economy, as well as the global economy this year,” said the vice minister.

Responding to skepticism that the government may end up lowering its initial forecast, as it did this year, the senior official pointed to the recent developments between Washington and Beijing and improved global indices. The government’s growth forecast for this year has dipped 0.7 percentage point throughout the year, down from the initial 2.7 percent suggested late last year.

“Tangible figures such as the Purchasing Managers’ Index and the OECD Composite Leading Indicator have marked upturns in October-November, underpinning our anticipations for economic progress next year,” he said.

Also, as the Moon Jae-in government enters the second half of its five-year term, 2020 will mark an important turning point for the paradigm shift toward an innovative inclusive state, according to the ministry.

By Bae Hyun-jung(tellme@heraldcorp.com)