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Title NABO Economic·Industry Trends & Issues (No. 2)

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    2020-02-21

NABO Economic·Industry Trends & Issues (No. 2)


Published on Feb. 21, 2020
Published by Economic Analysis Department


I. Economic·Industry Trends
Although Korea’s recent economic indicators are improving, it is possible that signs of the economic comeback may be thwarted by the spread of COVID-19. During December, the Index of All Industry Production (IAIP) and the Cyclical Component of Leading Index increased for two and four straight months respectively with employment seeing great improvement, especially in the service sector. The Consumer Price Index (CPI) rose 1.5% YoY – a departure from the 0% range that was ongoing since January of last year. The financial market is showing signs of high volatility due to expectations for economic improvement, mitigated geopolitical risks in the Middle East, and the spread of COVID-19.

 

Ⅱ. Pending Economic·Industry Issues
COVID-19 has spread throughout China and around the world since its outbreak in December 2019. Considering the size of the Chinese economy and its correlation with the Korean economy, there is concern that the Korean economy will be adversely affected by the spread of the virus.
A survey of incomes for those with wage and salary jobs in 2018 found that they earned an average monthly income of 2.97 million won, with the income of those in their 40s being the highest (3.65 million won) by age group, and the average income difference between men and women was largest in the 50s age group (1.96 million). The share of the median income group increased 1.2%p compared to what it was in 2017, and the gap between average and median income groups narrowed.
Currently, a few employment indicators, such as Korea's youth employment and unemployment rates, as well as youth non-regular employment rates, seem to be improving. However, analysis of Korea's youth employment rate indicates that it is lower than the OECD average. In addition, it also illustrates a high unemployment rate among those in their late 20s, and that a large share of youth not in employment, education, or training (NEET) have completed tertiary education.
While real Gross Domestic Product (GDP) grew only 2.0% YoY, the government sector contributed 1.5%p, accounting for 75% of economic growth. However, it should be noted that government spending moved in the opposite direction of GDP growth rates, curtailing further economic growth. Therefore, it is necessary to improve the timeliness of fiscal execution and mitigate economic volatilities by factoring in accurate economic conditions in the future.

 

Ⅲ. Economic·Industrial Issues
This report examined the likelihood of the Korean economy undergoing prolonged slow economic growth accompanied by deflation as its Japanese counterpart has. There are various indicators available, such as insufficient aggregate demand, change in demographics, declines in productivity and growth potential, and failure of monetary and fiscal policies in an attempt to explain the cause of long-term low growth in Japan. However, it may be the result of sluggish domestic demand and lack of innovation. In this respect, Korea is unlikely to experience Japanese-style long-term slow growth in the short term because it seems to have better fundamentals in terms of private demand, Total Factor Productivity (TFP), investment capital contributions to growth, and monetary policy effectiveness. To prevent prolonged low growth accompanied by deflation, it is necessary to mitigate the reduction of the working age population, increase labor force participation, continue to innovate, and implement policies that will balance growth between exports and domestic demand. In addition, policy-making bodies should work together to stop expected inflation rates from falling and maximize the positive effects of monetary and fiscal policies.

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