The slow growth of South Korea’s per-capita income widened its income gap with the Group of Seven (G7) countries. In 2020, the nation surpassed Italy in the GNI per capita standings, celebrating its economic takeoff to rival G7 economies. But South Korea stayed above Italy for only one year, and its gap with Italy widened last year. This is because Korea’s low growth and a high exchange rate worsened Korea’s dollar-denominated income indicators.
According to the BOK’s financial and economic snapshot service on Oct. 30, South Korea’s nominal GNI per capita in 2022 was US$35,990, based on the latest World Bank statistics. This was lower than Italy’s (US$37,700), the lowest GNI per capita among G7 countries.
Previously, in 2020, South Korea’s GNI per capita of US$324.30 outweighed Italy’s US$330.4. It was the first time in history that South Korea’s GNI per capita eclipsed that of a G7 country.
However, that was a temporary reversal due to the COVID-19 shock. At the time, Italy’s real GDP growth rate was -9 percent, significantly lower than South Korea’s -0.7 percent. In 2021, when the Italian economy began to normalize, Italy’s GNI per capita climbed to US$36,130, surpassing South Korea’s US$35,110 by US$1,020. The gap grew to US$1,710 last year.
South Korea’s gaps with other G7 countries also widened. The United States’ GNI per capita increased from US$64,650 in 2020 to US$76,370 last year. The GNI per capita gap between South Korea and the United States expanded from US$31,610 to US$40,380. Over the same period, the GNI per capita gap between South Korea and Germany widened from US$15,010 to US$17,400 and the gap between South Korea and Canada from US$17,700 to US$16,970. The gap between South Korea and the United Kingdom was US$5550 in 2020, the smallest among G7 countries except Italy, but increased more than 2.3 times to US$12,900 last year. Japan was the only G7 country that South Korea narrowed the gap with as the gap contracted from US$7,830 to US$6,450.
The wider GNI per capita gap between South Korea and the G7 countries last year was due to differences in exchange rates, growth rates, and inflation. According to the Bank of Korea’s Economic Statistics System (ECOS), the average won-dollar exchange rate in 2022 was 1,291.95 won, up 12.89 percent from the average in 2021 (1,144.42 won). This was a significant drop in value compared to the United States, which uses U.S. dollars. The euro used by Germany and Italy also depreciated against the dollar, but the rate of the euro’s depreciation stood at 10.97 percent. It was lower than that of the Korean won’s depreciation.
In terms of economic growth, there have also been cases of Korea lagging behind the G7 countries. Last year, Italy’s real GDP grew by 3.7 percent from the previous year, more than 1 percentage point higher than South Korea’s 2.6 percent. Canada (3.4 percent) and the United Kingdom (4.1 percent) also outgrew South Korea. GDP deflators also favored the G7 countries. In terms of consumer price inflation in Italy (8.2 percent), the United States (8.0 percent) and the United Kingdom (7.9 percent) significantly outpaced Korea (5.1 percent).
This year, Korea’s growth rate may hit 1.4 percent based on the IMF’s calculation method, slightly higher than Italy (0.7 percent), France (1.0 percent), and the United Kingdom (0.5 percent), but lower than the United States (2.1 percent) and Japan (2.0 percent), and exchange rate issues may further widen South Korea’s GNI per capita gaps, experts forecast.