NABO Economic Trends & Issues (Issue No. 63)
I. Economic Trends
The recent Korean economy has been showing a steady increase in exports with improved consumption, but a decline in construction investment as the value of construction completed has been falling over two consecutive months. Despite the loss of two business days in December, exports this month reached a record high average daily export volume compared to the same month in previous years, maintaining strong growth. Consumer prices remained low, increasing by 1.5% YoY, due to reasons such as lower vegetable prices. The won-to-dollar ratio continued to sharply decline, recording a monthly average of 1,086 Korean won against the dollar, following the continued economic recovery in Korea and abroad as well as the weakening of the dollar in global markets.
Ⅱ. Examining Major Internal and External Macroeconomic Risk Factors in 2018
The Korean economy is expected to maintain its recovery track in 2018 thanks to increases in exports and consumption improvement as the global economy continues to grow. Nevertheless, uncertainty remains on the growth track for the Korean economy due to internal and external macroeconomic risk factors. Internal risks include the high possibility of a slowdown of the construction industry which has been the backbone of Korea’s economic growth; the risk of escalating household debt due to an interest rate hike by the monetary authority; as well as the recent trend of the won-to-dollar ratio falling at a rapid pace. Externally, issues such as international oil prices which are currently above 60 dollars a barrel; the risk of a capital outflow from Emerging Markets and Developing Countries triggered by changes in the direction of monetary policy in advanced economies; the expansion of global protectionism; as well as China’s structural reforms and growth rate decline are garnering attention as macroeconomic risk factors. Such external and internal macroeconomic risk factors need to be thoroughly analyzed in advance followed by an effective set of policy measures in order to mitigate uncertainty along the growth path and secure steady growth.
Ⅲ. Status and Implications of the Public Debt Guarantee Service for SMEs
While bank loans were the main source of financing for Korean small and medium enterprises over the past decade, there appear to be challenges given the relatively high interest rates and high rates of loan rejection compared to other OECD member countries. In order to address such difficulties in SME financing as well as to prevent market failures, the government has been providing public debt guarantees. As the need to develop climate technology, which is a type of environmental public good, as well as the interest in government support increase, this report analyzed the effect of the guarantees provided by the Korea Technology Finance Corporation which offers loan guarantees for climate technology. As a result, it was found that companies that receive technology financing outperform companies that do not, by 0.02 to 0.08 times in terms of long term performance (over 2-3 years) finance (revenues), employment (number of employees hired) as well as technology (number of registered patents.)