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Economic Trends & Issues

Title NABO Economic Trends & Issues (No. 50)

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NABO Economic Trends & Issues (Issue No. 50)
December 23, 2016
Economic Policy Analysis Division of the Economic Analysis Office

I. Economic Trends
  Amid the increasing uncertainty in domestic and external economies, the Korean economy is showing signs of deterioration with continued declines in industry production and plant and equipment investment.
Ⅱ. The Overview of the Deliberation on the「FY 2017 Budget」
  The National Assembly has confirmed the budget bill and draft funds management plans submitted by the government. As a result, there was a net decrease in total income by 0.3 trillion won (0.6%) to 414.3 trillion won, and a net decrease in total expenditure by 0.2 trillion won (0.4%) to 400.5 trillion won. By sector, there were budget increases for education (1.0 trillion won) and SOC (0.4 trillion won), whereas general/local administration (-0.6 trillion won), public health/welfare/employment (-0.5 trillion won), culture/sports/tourism (-0.2 trillion won) saw budget cuts.
Ⅲ. Analysis of the Factors Altering the Global Trade Environment and Implications
  The global trade environment in undergoing changes such as a worldwide trend of low growth, the maturing of the global value chain,  the spread of the digital economy, an increase of trade in services and strengthened trade protectionism. An empirical analysis suggests that structural factors are leading to a significant decline in long-term elasticity of world trade to real GDP and a deterioration of trade growth rates. In response, it is necessary to further add value to exporting goods, diversify the list of companies exporting products, enhance the global competitiveness of small-and-medium enterprises and the services sector, and respond to trade protectionism.
Ⅳ. Characteristics of Reaganomics and Implications on Trump’s Policies
  Reaganomics emphasized the supply side of economics, pursuing tax cuts and contractionary monetary policies. While the economic policy of the Trump administration includes some similar characteristics, increasing fiscal expenditure mainly for infrastructure development and pursuing a mercantilist policy of trade protectionism are new approaches. According to Trump’s proposed policies and plans announced by the US FRB, it is expected that the American economy will show signs of recovery along with a normalization of market prices and interest rates. However, the uncertainty of its external trade policy is likely to be aggravated due to trade protectionism.
Ⅴ. Progress Report on the Implementation of the 「Special Act on the Improvement of Corporate Vitality」and Tasks Ahead
  As of now (19 December), since the implementation of the Special Act on the Improvement of Corporate Vitality (i.e. the “One-Shot Act”), whose purpose is to support in advance the business restructuring of financially healthy companies in oversupplied sectors, 10 companies in 6 different sectors including steel and petrochemicals have had their restructuring plans approved. Future tasks ahead include first, conducting an effectiveness evaluation of the restructuring efforts and monitoring whether market competition has been limited; second, strengthening the fairness, transparency and accountability of the restructuring process by recording and disclosing verbatim, the increase in the number of items subject to disclosure and developing criteria for determining potentially insolvent companies; and third, strengthening the role of the Fair Trade Commission and Ministry of Employment and Labor while strengthening cooperation between agencies on the restructuring of sectors such as construction, which falls under the responsibility of other ministries.

Ⅵ. Ways to Increase the Equity of Energy Benefit Programs
  In 2017, the government plans to inject 74 billion won in an energy voucher program to provide energy benefits to the low-income class. The energy voucher program is forecast to have issues regarding equity among people eligible for energy benefits as well as substandard performance in the conversion of energy sources. Therefore, it is necessary to support energy source conversion for the low-income class through methods such as standardizing the eligibility criteria for each energy source of the energy benefit program.
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