South Korea's economy is expected to enjoy solid growth next year, helped by rises in exports, consumption and investment. Yet the country needs to deal with several persistent downside risks to put the economy back on track.
The Ministry of Economy and Finance has revised up its 2022 economic growth outlook to 3.1 percent from its previous projection of 3 percent. The figure is lower than this year's estimated growth of 4 percent. But it is higher than the 3 percent predicted by the Bank of Korea and the Korea Development Institute as well as the 2.8 percent forecast by the Hyundai Research Institute and the LG Economic Research Institute.
The ministry's upbeat outlook reflects its determination to speed up the economic recovery despite the resurgence of the COVID-19 pandemic. The government expects private spending to increase 3.8 percent next year, up from this year's predicted growth of 3.5 percent. This forecast is certainly based on the presumption that the country can contain the coronavirus to boost domestic demand and private consumption.
In other words, South Korea may not see the upbeat outlook become a reality. That is why some critics say the Moon Jae-in government is painting a rosy picture about the economy ahead of the March 9 presidential election. Of course, it would be better to have an optimistic projection rather than a pessimistic one, because the economy is heavily affected by psychological factors.
Most of all, the country should go all-out to tackle a series of downside risks in order to maintain the recovery momentum. The new wave of the pandemic is one of the most serious risks that could undermine efforts for the return to normal life and economic resuscitation. The health authorities have already warned that the number of daily new infections could surge to 10,000 this month and further to 20,000 in January. So it is imperative to take more fundamental and comprehensive measures to avoid a worst-case scenario.
No less serious is mounting inflationary pressure on the back of high prices of oil and agricultural products. The country's consumer prices jumped 3.7 percent year-on-year in November, hitting the highest increase in a decade and far surpassing the central bank's target of 2 percent. The economy ministry predicts consumer prices next year to rise by 2.2 percent, down from this year's estimated 2.4 percent. Yet it will not be easy to keep inflation at that level, given the rising prices of energy and raw materials on international markets.
Another destabilizing factor is global supply chain bottlenecks which could also hinder economic recovery. The government and businesses should work together more closely to ensure the smooth supply of materials and parts essential to manufacturing major products, particularly core export items such as semiconductors and automobiles. It is also necessary for Korea to minimize the fallout from the escalating Sino-U.S. rivalry. The country may incur losses both economically and diplomatically, caught in the crossfire between the two superpowers.
Last but not least is political uncertainty stemming from the March 9 presidential election. Regardless of whoever wins in the poll, many changes will be inevitable, making it difficult to maintain consistency and coherence in key economic policies. Next year's economic recovery will depend on how to cope with all those risks.