SEOUL– South Korea on Wednesday unveiled its 2023 economic policy plan that focuses on coping with inflation and revitalizing exports, as the country is set to continue to face external uncertainties, including the Russia-Ukraine war.

South Korea will also seek to revamp labor policies to allow businesses to have employees work extra hours for an economic recovery led by the private sector, although the moves are expected to face protests from opposition parties and the public.

In its latest report on the economic outlook for 2023, the Ministry of Economy and Finance said Asia’s No. 4 economy is expected to grow 1.6 percent next year, falling sharply from 2.5 percent projected for this year.

Citing external uncertainties and slowing domestic consumption, the ministry said its two major policy goals for 2023 are “overcoming the crisis” and “revitalizing the economy.”
The government said it plans to reach the target mainly by coping with macroeconomic factors, including inflation, bolstering exports and seeking a structural reform for the South Korean economy.

“For the time being, we plan to prioritize stabilizing prices and implement a flexible mix of policies by considering risks and macroeconomic situations comprehensively,” the ministry said in the report.

Inflation has been one of the major drags on the South Korean economy, as it takes time for the central bank’s monetary tightening to come into effect.

The ministry said the country’s inflation is expected to hit 5.1 percent this year, although it may slightly fall to 3.5 percent in 2023.

The Bank of Korea said South Korea will likely see inflation grow at about 5 percent “for the time being.” However, price growth will slow down “steadily” thanks to stabilizing oil costs and the impact of the economic slowdown at home and abroad, it added.

The central bank has hiked the rate by a combined 2.75 percentage points since August last year to tame inflation, eventually reaching 3.25 percent at the final rate-setting meeting of this year in November.

The bank is set to continue its hike in 2023, although it is widely expected to peak at 3.5 percent.

The government vowed to roll out various measures to lower prices until the monetary-tightening move comes into effect.

In line with such efforts, South Korea plans to continue offering tax cuts for fuel consumption through early 2023, as the existing deduction scheme is set to expire at the end of this month.

The government plans to offer a tax cut of 25 percent for gasoline consumption from January to April and maintain the current 15 percent tax cut for resources used in power generation for six months.

South Korea will also implement a tariff-rate quota on key agricultural goods, including onions, pork and chicken, to stabilize market prices as well.

The tariff-rate quota is a system under which products are imported with favorable duty conditions within a designated volume.
In terms of exports, the government expected the annual outbound shipments to fall 4.5 percent in 2023, compared to a 6.6 percent growth this year amid the looming concerns over a recession and the weak chip market.

South Korea’s exports fell for the second consecutive month in November, and the decline accelerated from the previous month due mainly to the dwindling global demand for semiconductors amid the economic slowdown.

The country also suffered a trade deficit for the eighth straight month on high global energy prices, ringing an alarm over its growth momentum.

“The recent trade deficits are attributable to high prices of crude and other raw materials, which led to higher imports,” First Vice Finance Minister Bang Ki-seon said. “We cannot decisively say when exports will become a surplus.”

Bang added that the turning point will depend on future oil prices.

To further beef up exports, the government said it will increase the trade financing for local exporters to a record 360 trillion won (US$276 billion) from the current 351 trillion won.

It will also seek to help local firms win overseas infrastructure projects worth $50 billion annually to become the world’s No. 4 construction player in 2027.

It added that South Korea will also help local firms penetrate deeper into the overseas nuclear power plant and defense markets.
Along with coping with inflation and weak exports, the government also vowed to roll out a set of measures to seek structural reforms in the country’s labor, education and pension sectors.

The move especially came as the Yoon Suk Yeol administration has been pushing to reform the 52-hour workweek scheme, claiming the current system does not consider various labor needs of different industries.

A labor policy advisory group earlier launched by Yoon advised that companies should be allowed to manage overtime work hours on a monthly, quarterly, half-yearly or yearly basis, in addition to the current weekly basis, which would pave the way for employees to work up to 69 hours per week.

The ministry said it plans to develop a revised workweek policy in the first half of 2023 after going through social consultations.

For now, the government plans to focus on allowing companies with fewer than 30 workers to have their employees work an additional eight hours per week through 2024, as the grace period is set to expire at the end of this month.

South Korea also eyes to carry out structural reforms in pensions and public health insurance to make them more sustainable amid the aging population.

In terms of the property market, the government said it would seek a “paradigm shift” in regulations for owners of multiple homes and have them play a more significant role in the property market, as housing prices appear to be entering a downturn amid rising interest rates.

For example, the country plans to allow such homeowners in regions designated as “speculative areas,” including Seoul and some areas in its surrounding Gyeonggi Province, to receive mortgage loans.

While they have been fully banned from applying for mortgage loans since September 2018, in line with the previous administration’s efforts to curb property costs, the government plans to allow a 30 percent loan-to-value (LTV) ratio for owners of multiple homes.

Meanwhile, as the ruling and opposition parties are facing troubles in passing next year’s budget at parliament, experts say the set of proposed plans announced by the government is anticipated to continue to face hurdles down the road.

The experts also warned that the government should play a more active role in supporting the vulnerable group in next year’s economic policy.

“There is no way that domestic consumption can rebound if the consumption, investment and government spending all decrease simultaneously,” said Kim Jung-sik, an honorary professor of economics at Yonsei University.

“While we need to recover the fiscal soundness of the government, which deteriorated under the previous administration, we also should control the speed by taking the side effects of an economic slump into consideration.”

Source: Yonhap News Agency