Sandwich Effect to Weigh on Economy
By Lee Hyo-sik
Staff Reporter
Korea is engaged in a fierce competition with rapidly-growing emerging economies, including China, and it is expected to be squeezed between advanced and developing economies, one of the nation's leading private think tanks said Wednesday.
It warned that the ascent of emerging economies will intensify the "sandwich effect," forcing many developed countries to put up stricter trade barriers against locally produced goods.
The Samsung Economic Research Institute named the return of the ``three highs'' ― high oil prices, a strong Korean won and a rising interest rate ― and jobless growth as two of Korea's top 10 political, social and economic trends for 2010.
It said Asia's fourth-largest economy will seek to implement an exit strategy from its range of unprecedented fiscal and monetary expansionary policies, while trying to upgrade its international status through the hosting of a G-20 summit and other high-profile global events.
'Three Highs'
Businesses here will face a host of internal and external challenges this year, including the rising prices of crude oil and other commodities in line with the global economic recovery. The institute said the globally weak dollar ― the result of the U.S.'s near-zero interest rate policy, on top of its snowballing trade and fiscal deficits ― will increase the value of the local currency. Additionally, the interest rate will show an upward curve in 2010 as the global economy is increasingly returning to normal.
Korea Inc. will be increasingly sandwiched between emerging economies and recovering developed countries. China, India and other major developing nations have emerged unscathed from the unprecedented global economic slump and expanded at an explosive pace.
By taking advantage of huge domestic markets, companies based in emerging economies have been able to grow rapidly and strengthen their competitiveness, posing an increasing threat to Korean firms in the global market.
Additionally, slowly-rebounding developed economies are expected to escalate a trade conflict against export-oriented economies such as Korea by tightening environment and labor-related regulations on their imported goods.
Jobless Growth
Despite the ongoing economic rebound here, the nation's job market will remain in a slump this year, the think tank said. The Korean economy is expected to recover in 2010, but many businesses are still reluctant to hire new workers, due to rising labor costs and the uncertain business environment.
A growing number of local companies are moving their production facilities to China and other emerging Asian economies for cheaper land and labor costs. Also, Korea's economy has become more focused on capital and technology, generating fewer new jobs.
Exit Strategy
SERI said the government and the Bank of Korea this year will seek to discontinue the array of extraordinary measures they put into place to prop up the sagging economy in the aftermath of the worldwide financial turmoil.
But the interest rate hike, the tightening of fiscal expenditure and other exit strategies will likely be implemented in a careful manner, as both the government and central bank have pledged to maintain an expansionary mode until a genuine recovery.
Turning Point for SMEs
Small- and medium-sized enterprises (SMEs) should make more efforts to strengthen their competitiveness for survival this year, with their subsidies and other governmental support measures shrinking. Many unprofitable small firms will disappear, while strong ones will be able to enjoy an improved business environment, as it will be easier for them to raise funds at lower costs, the think tank said.
Shakeup in Media, Communication Industry
The domestic telecommunication, Internet and broadcasting industries will undergo drastic changes in 2010, with wire and wireless businesses being increasingly combined.
They will also converge with various manufacturing and service sectors to generate greater value. In the media industry, competition to forge new multichannel broadcasters will intensify.
Upgrade of Korea's Status
Korea's international status will be upgraded dramatically this year. It used to be one of the world's poorest countries, surviving on international aid. But last year, Korea became the first country in the world to become a donor from a recipient.
Through the hosting of the G-20 summit in November and other significant global events here, the nation's international image and status will improve greatly in 2010, the institute said.
Improving Relations with the North
SERI projected that the two Koreas will make more efforts to improve their bilateral relations this year. In a bid to climb out of its dire economic condition and carry out a father-to-son power transfer, the communist state is expected to seek to ease tensions with the U.S., South Korea and other neighboring countries.
The think tank also said an inter-Korean summit may be possible this year.
Local Election to Bring Change
The upcoming local elections in June to select heads of municipal administrations and local council members will be carried out in a bottom-up fashion, not in the usual top-down one, SERI said.
The election paradigm will shift as candidates place greater emphasis on addressing the interests and concerns of the electorate, rather than blindly following the policy agendas of political parties they belong to.
Baby Boomers Retire
The baby boom generation ― those born after the Korean War ― is beginning to retire this year, making the retirement age, job market flexibility and other labor-related concerns of workers approaching retirement one of the most important social and economic issues.
High-Quality Leisure
Koreans are expected to enjoy more environmentally-friendly and luxurious leisure activities. In line with the economic rebound and the strengthening of the Korean won, more individuals will not only travel to domestic spots, but also head to overseas destinations.
Medical tourism and other high-quality leisure products and services will be introduced to meet growing expectations from the local vacationers.