Korea Inc. faces many challenges this year
Last year, the Korean economy grew 4 percent, marking the largest expansion in 11 years. It was the result of hard work by all economic players, such as the government, businesses, and households, amid the unprecedented public crisis caused by the COVID-19 pandemic. Unfortunately, the average growth rate in the past two years failed to recover to the pre-pandemic level. Moreover, Korea Inc. faces many challenges that need to be overcome this year, including the new wave of the coronavirus, an economic slowdown in the U.S. and China, soaring inflation, and monetary tightening.
According to data from the Bank of Korea, Korea's gross domestic product (GDP) was estimated to have grown 4 percent last year, expanding at the fastest rate since 2010 and hitting the government's growth target. Various factors, such as the base effect of negative growth in 2020, brisk private consumption and robust exports, contributed to the better-than-expected performance. Notably, consumption expanded 3.6 percent, marking the highest rise since 2010, thanks in part to aggressive fiscal expansion, including the provision of emergency relief funds.
However, it should be noted that the average growth rate of 2020 and 2021 stood at 1.5 percent, falling far behind the country's growth potential of over 2 percent. In December, the government set its target growth rate for 2022 at 3.1 percent, assuming consumption and exports will remain brisk. Still, the Omicron variant's spread from the beginning of this year will likely restrict economic activity. Uncertainty is also growing abroad, as the U.S. and Chinese economies slow down, inflation prolongs, and major countries return to monetary tightening. That's why the International Monetary Fund has lowered its global economic growth projection from 4.9 percent to 4.4 percent.
Saddled with massive household debt, Korea has a high possibility of experiencing a drop in consumption and a jump in bad debt if interest rates keep rising. In other words, chances are high that the nation will fail to attain this year's growth target. At times like this, the role of fiscal spending is more important than anything else. While normalizing economic activities to the maximum through effective quarantine steps, the government should focus its policy on supporting vulnerable classes, stabilizing prices, and handling global supply chains effectively.
Last year, the Korean economy grew 4 percent, marking the largest expansion in 11 years. It was the result of hard work by all economic players, such as the government, businesses, and households, amid the unprecedented public crisis caused by the COVID-19 pandemic. Unfortunately, the average growth rate in the past two years failed to recover to the pre-pandemic level. Moreover, Korea Inc. faces many challenges that need to be overcome this year, including the new wave of the coronavirus, an economic slowdown in the U.S. and China, soaring inflation, and monetary tightening.
According to data from the Bank of Korea, Korea's gross domestic product (GDP) was estimated to have grown 4 percent last year, expanding at the fastest rate since 2010 and hitting the government's growth target. Various factors, such as the base effect of negative growth in 2020, brisk private consumption and robust exports, contributed to the better-than-expected performance. Notably, consumption expanded 3.6 percent, marking the highest rise since 2010, thanks in part to aggressive fiscal expansion, including the provision of emergency relief funds.
However, it should be noted that the average growth rate of 2020 and 2021 stood at 1.5 percent, falling far behind the country's growth potential of over 2 percent. In December, the government set its target growth rate for 2022 at 3.1 percent, assuming consumption and exports will remain brisk. Still, the Omicron variant's spread from the beginning of this year will likely restrict economic activity. Uncertainty is also growing abroad, as the U.S. and Chinese economies slow down, inflation prolongs, and major countries return to monetary tightening. That's why the International Monetary Fund has lowered its global economic growth projection from 4.9 percent to 4.4 percent.
Saddled with massive household debt, Korea has a high possibility of experiencing a drop in consumption and a jump in bad debt if interest rates keep rising. In other words, chances are high that the nation will fail to attain this year's growth target. At times like this, the role of fiscal spending is more important than anything else. While normalizing economic activities to the maximum through effective quarantine steps, the government should focus its policy on supporting vulnerable classes, stabilizing prices, and handling global supply chains effectively.
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