1st YEAR in OFFICE Yoon's economic team somewhat successful in juggling growth, inflation

President Yoon Suk Yeol walks with Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho for the weekly Cabinet meeting at the presidential office in Seoul's Yongsan District, Tuesday. Yonhap

By Yi Whan-woo

• Published May 9, 2023 3:48 PM KST
• Updated May 9, 2023 4:25 PM KST

By Yi Whan-woo

President Yoon Suk Yeol's economic policy team appears to have been somewhat successful in striking a balance between growth and inflation, a priority task set for it after Yoon took office a year ago, according to analysts.

Led by Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, the team managed to keep inflation under control and bring it down to a 14-month low of just 3.7 percent in April following a steep rate hike.

The April figure is a notable example of stabilization, from last year's inflation, when consumer prices rose to as high as 6.3 percent before closing in December at 5.1 percent ― the highest level since 1998, when the Asian financial crisis occurred.

The prospect for growth, however, is becoming bleaker and is casting shadows over the government's hope for the economy to bounce back in the second half of the year after remaining sluggish in the first half.

Last week, both Choo and Bank of Korea (BOK) Governor Rhee Chang-yong hinted at the possibility of lowering the 2023 growth forecast for Korea from 1.6 percent, as projected by the ministry and the central bank earlier this year.

“Under the circumstances, I'd say the government has been doing fairly well in tackling inflation but not so successful in helping the economy, which is reeling from the pandemic fallout,” said Kim Wan-joong, the chief economist at Hana Institute of Finance.

Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute, voiced a similar view.

He noted that the country only achieved a 1 percent-range level of growth during times of crises and that the possible downward revision of the GDP forecasts suggests that “the economic policy team has exhibited relatively more failings in dealing with growth than dealing with inflation.”

Asked about possible solutions to spur growth, the analysts remained skeptical considering that sluggish growth is mainly due to an export slump caused by sagging global demand for Korea's key sales items.

Korea's exports declined for the seventh consecutive month in April, which, in turn, led the country's trade balance to remain in the red for the 14th straight month.

The current account balance also suffered a shortfall for the second straight month in March and is believed to have extended its losing streak.

“The global trade environment is not something that the government can improve and I am not sure whether its measures to support exporters under the market-driven economic vision can result in tangible outcomes,” Kim said.

Lee assessed that the government's belt-tightening policies are resulting in a fall in tax revenue amid snowballing national debt, thus making it tough to spend money to spur growth.

Other risks listed by the experts were: fluctuation of the won-dollar exchange rate, planned hikes in utility fees and surging prices in food and services.

Meanwhile, the Ministry of Finance said it has been “making full-fledged efforts” since the beginning of the Yoon government to counter a complex set of economic challenges.

In a press release, Monday, it said its fiscal policy shifted to improving financial soundness by lowering the increase rate in annual expenditure to 5.1 percent.

It said its regulatory reform has been bold so as to restore the “dynamic aspect” of private businesses and that this will contribute to creating an economic effect worth 70 trillion won during Yoon's presidency.

It still acknowledged uncertainties associated with growth, inflation and market financial volatility, saying “We will remain alert to overcome the challenges we face.”