It is predicted that the recent Sewol ferry disaster will result in economic losses of over 1.5 trillion won (US$1.46 billion) with domestic consumer sentiment dampened to the point of cutting this year’s national economic growth rate by 0.1 percentage points. The direct costs associated with the catastrophe have also already exceeded one trillion won.
Under the circumstances, the reshuffled economic team of the Park Geun-hye administration sets sail led by Deputy Prime Minister candidate Choi Kyung-hwan, who is a key pro-President figure. Economic experts are making various calls on it already.
One of their common demands is a set of aggressive economic stimulus measures and a rapid implementation of a three-year economic reform plan to beat the aftereffect of the sinking of the Sewol ferry and continue the pace of economic recovery. In the short term, they are particularly calling upon the government to revitalize the real estate market and take action against any possible hike in the value of the Korean currency.
A couple of years from now will be the perfect time for Korea to join the ranks of advanced economies by breaking the vicious cycle of slow growth. The Korean government should iron out solutions to an aging society and better fulfill the three year plan for economic innovation, both of which are keys for entering an advanced economy.
Moody’s has recently come up with a rather optimistic report about the future of the Korean economy. Still, it added that the two problems mentioned above have to be resolved in advance for Korea to enjoy a per-capita GDP higher than that of Japan and France in 2018.
The working-age population of Korea is estimated to decrease from 2016 on. Harvard University professor David Bloom claimed during a recent Bank of Korea conference that the aging trend in Korea cuts 0.87 percent from its annual economic growth rate each year. Besides, time is ticking for the incumbent administration to carry out its three year plan focused on changing the fundamentals of the domestic economy. A parliamentary election is scheduled for April 2016, which means only two years or so are left for the government to be committed to the economy.
These days the slogans of creative economy, deregulation, economic innovation, and so on are not heard much due to the massive news of the Sewol ferry. But now is the time for economic participants in Korea to escape from this trauma, capitalizing on the launch of the new economic team.