2023 TOP 10 ECONOMIC NEWS Shrinking population weighs on Korean economy, companies

The year 2023 was a tough one for Korea.

The country is still reeling from the tightening of global financial market conditions. Poorer-than-expected corporate profits led to a marked drop in government tax revenues. Households also felt the pinch of the world’s fastest-growing debt and sustained elevated prices of goods and services, while the Bank of Korea left the key rate steady for the seventh consecutive time this year.

Korea’s fertility rate fell to new lows every quarter, while months of efforts to win the bid to host the World Expo 2030 in Busan ended in vain. A rush to advance generative IT technologies, meanwhile, offered a rare silver lining for the future of Korea's high-tech, human resources-oriented and export-dependent economy.

Here are the top 10 newsworthy events in Korean business and finance that made headlines in 2023.

Record-low fertility rate

Korea's total fertility rate plunged to a record low of 0.7 in the third quarter. The figure could fall further to 0.6 by the end of the year.

Statistics Korea said the rate, defined as the average number of children a woman is expected to give birth to during her lifetime, fell to 0.7 in the third quarter, down 0.1 from a year ago.

The quarterly figure was the lowest since related statistics began being compiled in 2009.

The country’s population is forecast to decline rapidly in the next 50 years to 36.2 million by 2072 from the current 51.7 million, the agency said. The elderly population – aged 70 or older – is expected to increase to over 10 million in 2033, nearly doubling from 5.92 million in 2022.

More than half of Koreans in their 20s and 30s said marriage is not necessary, statistics also showed. More than two in five married couples said they do not need a child.

Generative AI rush

Generative AI has been one of the biggest buzzwords not only for Big Tech, but also numerous startup players across the world this year thanks to the impact it has had on industries and people’s lives, sparked by OpenAI’s ChatGPT unveiled in late 2022.

This year saw Korean companies also rushing to introduce their AI technologies and implement them into their products. In July, LG AI Research introduced its hyperscale AI platform EXAONE 2.0 and a month after that, Naver launched the hyperscale AI model HyperCLOVA X to compete against ChatGPT and Google's Bard globally and domestically.

Samsung Electronics also unveiled its own generative AI model Samsung Gauss in November. The Korean tech giant added its AI service will be expanded into devices such as smartphones and home appliances to offer improved user experience. More details will be announced at the upcoming Consumer Electronics Show in Las Vegas, next month.

Record-high tax shortfall

The government said in September that this year’s tax revenue could fall short by 59.1 trillion won ($45.2 billion).

The revised revenue estimate of 341.4 trillion won was 14.8 percent short of the initial figure of 400.5 trillion won.

The Ministry of Economy and Finance said the figure is a record-high gap between the estimate and actual revenue since relevant data began to be compiled.

Among the factors for the record gap were pandemic-induced global challenges, including unwieldy inflation, high-interest rates and supply chain bottlenecks.

A slew of unfavorable global trade and financial conditions disrupted business operations, resulting in lower-than-expected corporate tax revenues, which are a key source of the government's earnings.

A cooling of the once-booming housing market also led to lower-than-expected collection of property taxes.

Samsung, SK hynix suffer net losses

Because of the slowdown in the global semiconductor market this year, Samsung Electronics and SK hynix, the country's two major chip makers, suffered quarterly net losses.

Samsung saw its chip business spending surpass earnings in the first three quarters of this year, registering a disappointing 3.74 trillion won ($2.86 billion) in cumulative earnings during the period, according to reports. The performance was linked to the company's free cash flow this year shifting to the red after falling by more than 11.8 trillion won from last year.

Part of the negative market factors for Samsung were sluggish sales in China where Samsung's earnings kept declining from 2019. Among the company's global markets, China performed the worst by contributing to only eight percent of worldwide earnings this year, the lowest ever.

The global chip market slump since late last year has also been forcing SK hynix to see its sales performance remaining sluggish since the fourth quarter of 2022. In the last quarter of this year, the chipmaker is expected to suffer an operating loss of 273 billion won and a net loss of 40.2 billion won by the end of the year.

Seven consecutive rate freezes by Bank of Korea

The Bank of Korea (BoK) left the key rate unchanged at 3.5 percent in November for the seventh consecutive time.

It lowered Korea's 2024 economic growth outlook to 2.1 percent, down from a forecast of 2.2 percent made in August, citing weakening consumption and restrictive monetary policies at home and abroad. This year’s growth projection of 1.4 percent remained unrevised.

BOK Governor Rhee Chang-yong said the central bank’s unanimous decision in November was warranted by high uncertainties in household debt growth and external market conditions, coupled by higher-than-expected inflation continuing to slow down.

Korea’s central bank will have more maneuvering room for policies next year, buoyed by the U.S. Federal Reserve indicating three interest rate cuts in 2024.

Among the significant factors in the key rate profile outlook are sustained cost increases and fluctuations in global oil prices and foreign exchange rates.

GS E&C's apartments betray trust

GS E&C, one of the country's 10 biggest developers, faced public backlash in April when the underground parking lot of one of its apartments being constructed crumbled before the scheduled completion months later.

The incident led to another finding that steamrolled the firm. Inspections of the problem site in Incheon 's Geomdan district discovered that 30 out of the building's 700 concrete slab floors were missing critical materials.

Records were discovered supporting faulty building practices at the construction arm of the major conglomerate. According to the Ministry of Land, Infrastructure and Transport, public complaints against the company's apartment buildings from 2020 until last August numbered over 1,600, 94 times more than the complatints filed against Samsung C&T. The figure also surpassed complaints received by the country's top 10 developers.

According to the Financial Supervisory Service, legal disputes involving GS E&C as of the third quarter numbered 34 and their total pleaded money reached almost 118 billion won ($90 million), the highest among the country's big five developers.

World’s fastest-growing household debt

Korea’s household debt grew at the fastest rate among the OECD member countries to top 1,876 trillion won as of September.

Korea’s household debt-to-GDP stood at 100.2 percent in the same period, the highest figure among OECD member countries.

When “jeonse” deposits are factored in, the figure rockets to 2,925.3 trillion won, according to Korea Economic Research Institute, a private think tank. Jeonse is a home renting system unique to Korea whereby tenants pay a lump sum refundable deposit for the term of the contract instead of monthly rent.

The bulky debt together with unwieldy inflation is a major monetary policy consideration for the country’s central bank.

Food prices soar

Supply chain disruptions caused by fluctuating global oil prices and intensifying geopolitical risks forced local retailers to increase their food prices. They all pointed their fingers to prices of raw food ingredients and other basic necessities for their businesses which increased going through distribution processes.

The food price hike this year was extensive and tenacious, with virtually all food products sold in supermarkets, restaurants, delivery outlets and street vendors rising. The price hike rate reached as high as six percent and continued at over three percent.

It first victimized the country's financially vulnerable group of students, jobless adults and those under the poverty line. Headlines showing people not able to buy food and missing meals kept showing up.

The situation shifted food companies to launch more affordable products, including major convenience stores with their new private brand products.

Finance Minister nominee Choi Sang-mok said during a National Assembly confirmation hearing on Tuesday that he will deal with the soaring food prices once he is appointed.

Short selling ban

Korea banned short selling, Nov. 6, prompted by illegal naked short selling of 56 billion won by BNP Paribas and HSBC combined. The ban will stay in place until June next year.

Short selling, or the sale of borrowed shares expecting a profit from a price fall when the shares are bought back at a lower price, had been widely used by foreign and institutional investors seeking leverage to net greater gains. Placing a sale without borrowing or confirming to borrow first is called naked short selling and is prohibited here.

Financial Services Commission (FSC) Vice Chairman Kim So-young said Dec. 1 the upsides to allowing short selling will never be appreciated if illegal naked short selling remains unscrutinized.

The practice of illegal short selling was essentially unmanageable under the current low-tech non-electronic monitoring systems, he said. This enables many foreign investment banks to continue to rake in undue hefty profits, with Korean share prices ending up being persistently stagnant.

Some criticize the ban as falling behind global standards, but the Korean capital market is not as advanced as the U.S.' where illegal practices are met with stern punishment, Kim said.

The MSCI issue is not the priority of the FSC, and it is only secondary to capital market advancement, he added.

Busan's Expo hosting bid flops

After years of revamping the city's coastal infrastructures to develop its old ports and branding itself as an English-friendly city, Busan tasted the bitterness of failing its bid to host the World Expo 2030.

The country's biggest port city lost the bid to Riyadh, Saudi Arabia, in a vote by member states of the Bureau International des Expositions during their general assembly in Paris last November. The city lost 29 votes to 119. It was a cold game the Korean government apparently never expected.

Before the vote, the Yoon Suk Yeol administration kept predicting the race between Busan and Riyadh would be neck-in-neck. Following the vote count, the country's opposition parties, including main opposition Democratic Party of Korea, condemned Prime Minister Han Duck-soo, who had jointly led the country's expo hosting bid committee, and the president for losing the race by such a huge margin – and having no idea about it beforehand.

Condemnation mounted the ignorance proves the authorities' ineptness in building rapport and earning support from the global community. A day after the vote, President Yoon addressed the country and apologized for losing the bid.