South Korea taking the rap for years of bubble growth
THE SONG is No 1 in the music charts all over the world and, for many of the hundreds of millions of people who have viewed Psy’s viral hit video Gangnam Style, it’s their first exposure to the remarkable economic miracle that is Korea in recent years.
In the ashes of the Korean War in the 1950s, South Korea was one of the poorest countries in the world. These days, this country of 50 million people is Asia’s fourth largest economy.
There are signs that growth is moderating but Korea is a determined place and the government is keen to boost exports as a way of keeping expansion healthy.
Psy’s song has clearly struck a chord here, reflecting both pride in Korea’s achievements but also a vague resentment about the way new money is monopolising Korean society and undermining traditional values.
An apartment in the posh district of Seoul costs about 800 million won(€552,000), about 18 times the average salary. And, as in other fast-growing Asian economies, there are fears about a bubble and slowing growth.
The ageing population could burst the property bubble and trigger a financial crisis, the Hyundai Research Institute has warned, following in the footsteps of Spain and Ireland, as the country is now past its demographic window – the period when the percentage of people able to work is at a peak.
In August, the Korea Economic Research Institute (Keri) revised its growth forecast for South Korea for this year to 2.6 per cent from the previous 3.2 per cent.
The prolonged recession in Europe, the delayed recovery in the US and decline in China prompted the revision by the think tank. It now expects the country’s trade surplus for 2012 to reach $15.9 billion.
The International Monetary Fund’s forecast is for 3 per cent growth this year, down from an earlier projection of 3.25 per cent.
The unemployment rate is also on the rise, up 0.1 of a percentage point to 3.2 per cent in June.
Overseas shipments fell 1.8 per cent in September from a year earlier, after a 6.2 per cent decline in August, the ministry of knowledge economy said.
However, it forecast that the trade surplus should expand to $30.3 billion (€23.23 billion) this year, thanks to a decline in imports and an improvement in its service account.
At the same time, fundamentals in Korea are strong. While other economies are being downgraded by ratings agencies, Korea is heading in the other direction.
Foreigners’ net investment in South Korean bonds in September rose by the most since March on the back of a raft of sovereign credit rating upgrades and expectations for additional monetary easing by the Bank of Korea.
Foreign inflows to the local debt market totalled 1.5 trillion Korean won (€1 billion) last month, while Standard Poor’s and Fitch Ratings raised South Korea’s sovereign credit rating in September, citing in part the country’s strong fiscal position. The upgrades further bolstered the South Korean debt market’s status as a safe haven.