Policy Focus on Growth and Private Sector
Change in policy stance under incoming conservative government
Conservative opposition candidate Yoon Suk-yeol was elected as the 20th president of Korea. The shift in political power away from the liberal government after five years clearly showed that voters were discontented with the Moon administration’s policies, with measures to curb demand in the real estate market leading to a surge in housing prices and shortage of Jeonse supply. Going forward, we expect the president-elect to reverse many of the policies introduced by the incumbent government.
Policy focus on growth and private sector to have broad economic effects
The incoming administration will prioritize: 1) growth over distribution; 2) private-led over government-led growth; 3) businesses over households; 4) adjustment of monetary tightening measures; and 5) Korea-US alliance over balanced diplomacy. President-elect Yoon Suk-yeol pledged during his campaign to introduce economic policies focused on growth and the private sector. We therefore expect the president-elect to focus on expanding production and supply by relaxing corporate regulations, rather than aiming to increase effective demand by compensating income losses.
The change in policy stance will likely have broad economic effects. First, the private sector should emerge as the main driver of growth. Second, the government will aim to increase the potential growth rate by encouraging participation in economic activities and enhancing productivity. Third, efficient distribution of resources will reduce excess money supply, helping to ease asset price inflation as a result. Fourth, strengthening Korea-US relations may raise the risk of economic retaliation by China, but benefit Korean businesses with the US focused on restructuring its global supply chain. Fifth, inflation could go either way with upward pressure expected from utility rate hikes and downside pressure from slower minimum wage increases.