By Lee Hyo-sik
Staff Reporter
The South Korean economy is expected to expand by just under 5 percent this year with its trade volume surpassing $700 billion, despite a host of internal and external negatives.
Per-capita national income will likely surpass $20,000 this year for the first time in the country's history. The stock market has been booming along with other emerging markets, regardless of financial market turmoil in the wake of the U.S. subprime mortgage crisis.
Also, exporters continue to ship record amounts of goods overseas, continuing to act as a main engine of the world's 13th largest economy. However, the Korean economy is facing an uncertain future next year and beyond as high oil prices, a strong won against the dollar and other negatives could derail its sustainable growth.
Also, the country's growth potential has diminished over the past few years as companies have refrained from expanding investment here and creating jobs amid uncertain economic outlooks.
The imminent transition of power from the previous two liberal administrations of 10 years to the conservative one will bring about a number of changes in Korean society. In particular, President-elect Lee Myung-bak is posed to shift economic policies after he is sworn in as Korea's 10th President early next year.
His pro-growth and pro-business policy stances will likely help boost corporate investment and attract foreign investments. But his market-friendly policies are feared to reignite a resurge in the real estate prices. To sum up what the country will likely grapple with next year, Hyundai Research Institute outlined 10 most likely political, economic and social trends for 2008.
1. Big in Size, But Premature Economy: South Korea emerged as one of the major global economies from the ashes of the Korean War in the early 1950s. It is now the world's 13th largest economy with trade volume surpassing $700 billion this year, becoming the 11th economy in the world to do so. Also, the country's per capita national income is sure to exceed $20,000 for the first time this year. However, its growth potential has weakened significantly over the past few years as companies have become reluctant to expand investment and provide new jobs amid rapidly aging population and low birthrates.
To achieve a sustainable growth in the future, the country needs to nurture new growth engines to power its economy and encourage firms to increase investment and create new jobs
2. Dilemma Over Real Estate Policies: Real estate prices have surged for most of the first four years of the Roh Moo-hyun Administration on housing shortages and speculative demand.
But the real estate market has turned sluggish since late last year because of a number of government anti-speculation measures.
However, President-elect Lee has promised to cut property and capital gains taxes, as well as make it easier for old apartments to be renovated, to help revitalize the real estate market. However, the upcoming administration will be in dilemma over the former Seoul mayor's market-friendly real estate policies as they could trigger another upward spiral of property prices.
3. Four Highs (oil, interest rate, won, inflation): The Korean economy will likely continue to grapple with the ``four highs'' next year. International crude oil prices are expected to remain high next year on continued strong demand from China and other emerging economies amid tight supplies across the globe, which makes prices of goods more expensive and chipping away at corporate profits.
Interest rate will also likely continue to show an upward curve in 2008 as banks suffer from liquidity shortage. Commercial lenders will likely be forced to issue more certificates of deposits to raise funds, pushing up interest rates of mortgages and other loans, as more businesses and individuals will continue to take money out of bank accounts to invest in stocks.
Also, the won is projected to remain firm against the dollar and other major currencies next year, weakening the price competitiveness of local products in overseas markets.
Also, high prices of oil and other raw materials have raised consumer prices this year and the inflationary pressure is expected to further build up on the economy next year, putting heavier financial burden on businesses and households.
4. Shift of Economic Policies: President-elect Lee has pledged to shift the redistribution-oriented economic policies of the Roh administration to more pro-growth and pro-business ones.
The former Seoul mayor will likely ease regulations and lower taxes to encourage companies to expand investment and create jobs, and thus enhance the country's growth potential.
Lee has said putting greater emphasis on growth will better help ease the widening wealth gap between the rich and the poor, saying the income difference has worsened under the Roh administration, which has placed top priorities on the fair redistribution of wealth through high taxes and the expansion of welfare programs.
5. M&A Spree: The country's large business groups will likely engage in fierce competitions next year to acquire a number of companies up for sale. The local merger and acquisition (M&A) market is projected to reach 30 trillion won. Daewoo Shipbuilding & Marine Engineering, Hyundai Engineering & Construction and other blue chip companies will find new owners in the near future as President-elect Lee has pledged to dispose of firms that received public funds as early as possible.
Also, Lee has said he plans to privatize state-invested public companies to turn them into a more efficient and profit-oriented entity, as well as raise funds for a range of state projects. There will be more active M&A activities in the early days of the new administration.
6. Emergence of Fashion, Medical Service Businesses: Medical and other knowledge-based services businesses will likely emerge as one of the country's new growth engines next year as more Koreans are seeking high quality of life on rising income levels.
7. Fusion financial services: Barriers separating businesses of banks, brokerage firms and insurers will further crumble next year ahead of the Capital Market Integration Act that goes into effect in 2009.
Also, many life insurers are expected to go public in 2008 to raise funds to better compete with banks and securities companies in attracting customers.
Lenders, brokers and insurers will rush to set up a one-stop financial plaza in which customers can deposit money, buy stocks and insurance plans, as well as receive financial consulting.
8. Family-Oriented Corporate Management: In the wake of Samsung Group's slush fund scandal, the country's large business groups are coming under intense pressure to practice ethical and socially responsible corporate management. The trend is expected to make the management regard employees as a crucial asset and in turn, workers will develop more loyalty to the company, turning the entire organization into a one big family.
9. New Era of Inter-Korean Cooperation: Next year marks the 60th anniversary of the separation of the Korean Peninsula. President-elect Lee is widely expected to carry on the two previous liberal administrations' reciprocal policies toward North Korea. But it remains to be seen whether the two Koreas will maintain friendly relations and continue a number of planned cross-border business projects as Lee has demanded the communist state first abandon its nuclear development program before any provision of further aid from his administration.
10. Conflicts Between Koreans and Foreign Nationals: Korea has become a multi-ethnic and multi-cultural society as more Korean men marry foreign women, mostly from China and South East Asian countries. Also a large number of migrant workers have come into the country to work for higher wages and more foreign nationals are expected to come and settle in the future. An increasing number of foreigners living here could give a rise to racial discrimination against non-Koreans, potentially igniting ethnic tension between Koreans and non-Koreans.
leehs@koreatimes.co.kr
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