Concerns are being raised that the structure of South Korea’s economy is evolving into the “New Normal” characterized by low growth. This is due to the fact that our economy, heavily reliant on exports, is not recovering, primarily as a result of the sluggish Chinese economy. Furthermore, external challenges such as high interest rates and rising oil prices have also come to the fore.
According to statistics from the Organization for Economic Co-operation and Development (OECD) on Sept. 24, South Korea’s exports in July decreased by 15.5 percent compared to the same period the previous year. This decline is the fourth-largest among the 37 OECD member countries, excluding Colombia for which statistics were not compiled. Norway experienced a larger decline at 50.2 percent, compared to South Korea’s -15.5 percent. Estonia also recorded a greater decline with a decrease of 19.4 percent, while Lithuania saw a 16.4 percent drop, both surpassing South Korea’s figures.
Prior to this, South Korea’s export decline in December of the previous year at 10.1 percent and in January of this year with a decrease of 15.8 percent ranked as the second-largest among OECD member countries.
The main reason identified for this is the economic slowdown in China. From January to July this year, China accounted for 20.9 percent of South Korea’s total trade volume and 19.6 percent of total exports. During the same period, the proportion of exports of memory semiconductors, a key export product, to China was approximately 45 percent. It is a structural issue where China’s economic slowdown inevitably has a significant impact on South Korean exports.
The global high-interest rate environment centered around the United States and the rising international oil prices approaching US$100 (133,650 won) per barrel have already become vital factors affecting the South Korean economy.
With exports facing a slump and high-interest rates and oil prices persisting, it is a challenging situation to break free from the low-growth quagmire in the 1 percent range. On Sept. 19, the OECD projected South Korea’s economic growth rate for this year at 1.5 percent. This forecast remains unchanged from the estimate made in June.
On the other hand, major countries have seen their growth rate forecasts being revised upward. Therefore, the prevailing outlook is that the OECD’s average growth rate forecast to be announced in November is likely to surpass the estimate from June of 1.4 percent. If this indeed happens, South Korea would record growth rates below the OECD average for three consecutive years, following the trend seen in 2021 and last year.
In 2021, the average growth rate for OECD member countries was 5.8 percent, while South Korea’s growth rate was limited to 4.3 percent. Similarly, South Korea’s growth rate in the previous year was 2.6 percent, falling short of the OECD member country average growth rate of 2.9 percent. South Korea, which had been a leader in growth since joining the OECD, is now firmly establishing itself as a “mid-growth” country that cannot even reach the average growth rate.
Some analysts suggest that this year’s “low-growth trend in the 1 percent range” reflects the structural reality of the South Korean economy rather than being a temporary slump. Joo Won, director of the Economic Research Center at the Hyundai Research Institute, stated, “In countries like ours that heavily rely on exports and have limited monetary policy tools, shocks resulting from high interest rates and high oil prices can be more severe.”