hankyoreh

Freight containers fill Busan Port. (Yonhap)

The South Korean economy only posted 1.4% growth in 2023, falling below its potential growth rate of about 2.0%. Combined with a slowdown in consumption and exports, the current administration’s emphasis on fiscal soundness (in other words, tight fiscal policy) has led to unusually low growth.

According to a report on real GDP in the fourth quarter of 2023 and for the whole year that was published by the Bank of Korea on Thursday, Korea’s real GDP for 2023 increased by 1.4% compared to the previous year. This is the first time since 2000 that Korea’s economic growth has fallen below 2% except for 2020 (-0.7%), during the pandemic, and 2009 (0.8%), during the global financial crisis.

Korea’s consumption and exports were especially sluggish. Private-sector consumption only grew by 1.8% (year over year), the lowest it has been in three years, since 2020 (-4.8%). Spending was suppressed by high prices and high interest rates and flagged because of a tapering in the “revenge spending” that had roared back after COVID-19 restrictions were lifted.

Exports only grew by 2.8%, the lowest rate in three years, because of a weak IT sector.

Government spending wasn’t enough to prime the pump during a downtown in the real economy. In short, fiscal expenditure was weak because of the current administration’s emphasis on fiscal soundness. Government spending only increased by 1.3%, the lowest rate of increase in 23 years, since 2000 (0.7%).

The economic growth rate was lower than the potential growth rate, which was estimated to be 2.0%. That means the economy didn’t grow as much as it could have.

“The government’s tight fiscal policy amid poor economic conditions caused low growth in the 1% range. When economic growth underperforms potential growth, that means the government needs to totally rethink its policy approach,” said Ryu Deock-hyun, a professor of economics at Chung-Ang University.

By Jun Seul-gi, staff reporter

Please direct questions or comments to [english@hani.co.kr]