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Economic and political outline

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In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Ranking 10th among the world's largest economic powers and 4th in Asia in 2022, South Korea is famous for its spectacular rise from one of the poorest countries in the world to a developed, high-income country in just one generation. During the global financial crisis of 2007-2008, the country maintained a stable economy and even experienced economic growth during the peak of the crisis. However, the South Korean economy went into its worst year growth period in more than half a century in 2020, battered by China's economic slowdown and uncertainties over the trade war between Beijing and Washington, and the global effects of the COVID-19 pandemic. Stagnant investment and the failure to spill the boom of chip sector over into other industries already limited economic growth to an estimated 2.2% in 2019, before declining to -0.9% in 2020 and bouncing back at 4.3% in 2021. According to the IMF's October 2021 forecast, GDP growth is expected to reach 3.3% in 2022 and stabilise at 2.8% in 2023, subject to the post-pandemic global economic recovery.

Despite stimulus packages, public finances have deteriorated in 2020 and 2021. The budget surplus decreased from 0.5% of GDP in 2019 to -1.5% in 2020 and 12.5% in 2021. The IMF expects the fiscal deficit will remain at -2.6% in 2022 and reach -2.3% in 2023. Public debt grew to an estimated 51.3% of GDP in 2021 and is expected to rise in the coming years at 55.1% in 2022 and 58.5% in 2023 (IMF, October 2021). Inflation is projected to stand at 1.6% in 2022, compared to 2.2% in 2021 and 0.5% in 2020. Over 2020 and 2021 the government has worked hard to boost the economy through expansionary fiscal spending, and as a result employment data showed an improvement in terms of both the number of jobs and employment status. Framework measures for industrial innovation have been completed, which cover the plans to restructure manufacturing and services, develop the new core industries of data, networks and AI, and promote the three new promising industries of a system on a chip, biohealth and future cars. The government also worked for a second venture boom, strong employment support and social safety nets, which led to improved distribution indicators, and supplementary measures to help the 52 hour workweek run smoothly. However, the private sector has not yet picked up, as well as the country's growth potential. Exports have bounced back, led by semiconductors and automobiles. Investment has held up relatively well so far, despite weak demand and high uncertainty (OECD, 2021). Corporate debt represented 101.7% of GDP in 2019 (Korea Institute of Public Finance, 2020), rising 6.3 percentage points from the previous year, the second largest increase in the world, and the high level of household debt poses a risk to the banking sector.

In 2022, the country’s most immediate challenge remains related to the economic, social and public health impacts of the COVID-19 pandemic. South Korea has experienced remarkable success in combining rapid economic growth with significant reductions in poverty. Income per capita increased from USD 100 in 1963 to more than USD 31,762 today (IMF, October 2021). Although the unemployment rate was estimated very low in 2021 at 3.8% (IMF, October 2021) the number of irregular workers is very high, social inequalities are deepening and social ties are deteriorating. The government is struggling to turn employment around, even after using USD 400 million extra budget mainly for job-creation projects and is urging pension funds to invest more in small-cap Kosdaq stocks to boost innovation. In the medium and longer terms, South Korea will spend more on preparing measures to tackle the low birth rate, elderly poverty and low employment among women. The IMF expects however the unemployment rate to remain slightly affected by the negative economic impact of the COVID-19 pandemic, the rate being currently estimated to stay at 3.7% in 2022.

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 1.001.001.001.001.00
GDP (Constant Prices, Annual % Change) -0.74.12.62.02.7
GDP per Capita (USD) 3135333436
General Government Balance (in % of GDP) -1.50.2-1.60.30.4
General Government Gross Debt (in % of GDP) 48.751.354.154.455.2
Inflation Rate (%) 0.52.55.53.82.3
Unemployment Rate (% of the Labour Force) 3.93.73.03.43.3
Current Account (billions USD) 75.9088.3055.2962.5673.24
Current Account (in % of GDP) 4.64.93.23.53.9

Source: IMF – World Economic Outlook Database, Latest available data

Note: (e) Estimated Data

 

Main Sectors of Industry

South Korea has experienced one of the largest economic transformations of the past 60 years. Given its limited geographical size, insufficient natural resources and population size (a labour force of 28.4 million people out of its 51.28 million population), the country has devoted special attention to technology development and innovation to promote growth, growing from a predominantly rural, agricultural nation into an urban, industrialized country. Industry represented 32.6% of the GDP and employed 25% of the workforce in 2021 (World Bank, 2022). The main industries include textile, steel, car manufacturing, shipbuilding and electronics. South Korea is the world's largest producer of semiconductors.

The agricultural sector in South Korea only makes a negligible contribution to the country's GDP (1.8%) and employed only 4.8% of the active population in 2021 (World Bank, 2022). Rice is the main agricultural crop; barley, wheat, corn, soybeans and sorghum are extensively cultivated. The sector also includes large-scale livestock farming. Less than one-fourth of the land is cultivated. South Korea's mineral resources are limited to gold and silver.

The service sector is the largest and fastest economic sector, accounting for 57.1% of GDP and employing 70.2% of the active population (World Bank, 2022), especially department stores, store chains and supermarkets. Tourism was one of the fast-growing sectors, with a rise of 14% in 2019 according to Korean Tourism Organization, although the number of Chinese tourists dropped drastically in the last years because of Beijing's travel ban, which has not been fully lifted. Since 2020 the country is waiting for the world's borders to open again to international travel.

The COVID-19 pandemic has had a powerful impact on the global economy since 2020. Nevertheless, the global recovery continues, even if the momentum has weakened towards the end of 2021 and uncertainty has increased as the pandemic resurged, leaving lasting imprints on medium-term performance. The surge in global inflation has investors fretting about future growth, but many economists say price surges will subside, making way for 4.7% global GDP growth in 2022 (International Monetary Fund - IMF, 2022 & Morgan Stanley, 2021). The impact of the pandemic appears to have affected both sides of most sectors and markets in South Korea for the second year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 5.1 24.6 70.3
Value Added (in % of GDP) 1.8 32.8 57.0
Value Added (Annual % Change) -3.4 n/a -1.1

Source: World Bank, Latest available data.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
74/100
World Rank:
24
Regional Rank:
7



 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
7.50/10
World Rank:
24/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Country Risk

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
President: Yoon Suk-youl (since 10 May 2022)
Prime Minister: Kim Boo-kyum (since 14 May 2021) President Yoon has nominated HAN Duck-soo to the role of prime minister)
Next Election Dates
Legislative: April 2024
Presidential: 2027
Current Political Context
The Korean-peninsula remains one of the most protracted and volatile conflict zones in the word. President Moon Jae-in has pushed the denuclearization and the 'peace economy' concept as the cornerstones of its North Korea policy. In its five-year plan, the government is working to lay the foundations for economic unification by restarting inter-Korean cooperation and seeking a single market for Seoul and Pyongyang. The purpose is to achieve peace and unification by 2045.

President Moon Jae-in party has won a decisive victory in parliamentary elections in January 2020, with voters backing the government's response to the coronavirus pandemic. The ruling left-wing party is likely to press its reform agenda ahead of the next presidential election, notably on unemployment and chaebol reform.

Under South Korean President Moon Jae-in and his administration, Seoul has undertaken its first unified diplomatic initiative aimed at advancing ties with India and the Association of Southeast Asian Nations (ASEAN). This policy is an extension of South Korea’s need to diversify its economic and strategic relationships amid the uncertainty posed by competition between its closest ally, the United States, and largest trading partner, China. By elevating ties with India and Southeast Asia, particularly in the economic realm, Seoul hopes to insulate itself from the risks posed by trade and strategic friction between the two great powers.

Main Political Parties
The re-branding of party names and party mergers have been a popular means of securing additional votes in recent years. The most influential parties are:

- The Democratic (Minjo) Party : progressive

- People Power Party or PPP (formerly Liberty Korea Party): right-wing

- Justice Party: centre-left; organised around progressivism

Type of State
South Korea is a presidential republic. It is composed of 9 provinces and 6 cities with autonomous administration (Seoul, Busan, Incheon, Daegu, Gwangju, Daejeon).
Executive Power
The President is the chief of the state, head of the Government and commander-in-chief of the armed forces. He or she is elected by a popular vote for a single five-year term. The President enjoys executive powers and appoints both the Prime Minister and the State Council (cabinet) with consent of the parliament. The Prime Minister is not required to be a member of parliament and his or her main role is to assist the President.
Legislative Power
The legislature in South Korea is unicameral. The Parliament, called the National Assembly, has 300 seats distributed among parties in proportion to their share of the vote. Each member is elected to serve four-year terms. The executive branch of the government is directly or indirectly dependent on the support of the National Assembly, often expressed through a vote of confidence.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
42/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
2/7
Civil Liberties:
2/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

COVID-19 epidemic evolution
To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the disease in The Republic of Korea (South Korea), please visit the governmental portal on COVID-19 with the official data.
For the international outlook you can consult the latest situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.
Sanitary measures
To find out about the latest public health situation in South Korea and the current sanitary measures in vigour, please visit the “Public Advice” section of the official governmental portal on COVID-19.
Travel restrictions
The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.
Import & export restrictions
For information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), refer to the website of Korea Customs Service.
For the updated overview of the introduced trade import and export restrictions and other trade measures (ex. tariffs reductions) due to COVID-19 pandemic, please consult the section dedicated to South Korea on International Trade Centre's COVID-19 Temporary Trade Measures.
Economic recovery plan
For information on the economic recovery scheme put in place by the South Korean government to address the impact of the COVID-19 pandemic on the Korean economy, refer to the website of the Korean Financial Services Commission and the Bank of Korea’s Policy Response to COVID-19.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Korean government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to the Republic of Korea in the IMF’s Policy Tracker platform.
Support plan for businesses
For the information on the local business support scheme established by the Korean government to help small and medium-sized companies to deal with the economic impacts of the COVID-19 epidemic on their activity, refer to the website of the Korean Financial Services Commission to access the emergency programs for business.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document. You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.
Support plan for exporters
For the up-to-date information on possible support plans for exporters in South Koreaif applicable, please consult the website of the Ministry of Trade, Industry and Energy and the progams administered by the Korean Financial Services Commission.
 

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Latest Update: November 2022