{"id":2197140,"date":"2022-06-30T20:07:57","date_gmt":"2022-06-30T11:07:57","guid":{"rendered":"https:\/\/www.nknews.org\/pro\/?p=2197140"},"modified":"2023-04-05T16:12:13","modified_gmt":"2023-04-05T07:12:13","slug":"as-inflation-worsens-south-korea-braces-for-perfect-storm-of-economic-woes","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2022\/06\/as-inflation-worsens-south-korea-braces-for-perfect-storm-of-economic-woes\/","title":{"rendered":"As inflation worsens, South Korea braces for \u2018perfect storm\u2019 of economic woes"},"content":{"rendered":"
There has been a noteworthy shift in South Korean political and economic messaging in recent months. Largely gone is the idea that the country will be able to pass through what looks like an inevitable period of economic pain without major incident.\u00a0<\/span><\/p>\n Last November, South Korea was predicted to enjoy 4% growth in gross domestic product (GDP) for 2022. That declined to 3% in February and now sits at <\/span>2.7%<\/span><\/a>. That also seems increasingly optimistic and is due mostly to growth that already happened in the first three months of the year.\u00a0<\/span><\/p>\n Inflation is also expected to <\/span>tip 6%<\/span><\/a> in short order, and Financial Supervisory Service Governor Lee Bok-hyun has talked of a \u201c<\/span>perfect storm<\/span><\/a>\u201d just over the horizon.\u00a0<\/span><\/p>\n Lee\u2019s warning reflects a stark realization: Korea is in fact more vulnerable than many other developed economies to some of the immediate risks the world economy faces, among them inflation in energy and raw material inputs for the country\u2019s export-driven economy, deteriorating interest and exchange rates and exposure to sluggishness in China.<\/span><\/p>\n ECHOES OF THE 70s<\/b><\/p>\n The <\/span>specter of inflation<\/span><\/a> now looms large over Seoul, just as it does in much of Western Europe and North America.<\/span><\/p>\n The obvious touchstone for comparison is the 1970s. This may seem curious: Korea in the 1970s is almost always remembered as a place that enjoyed very rapid annual growth and rising incomes, understandably so given the <\/span>stunning successes that the country\u2019s Economic Planning Board<\/span><\/a> led during that and the preceding decade.\u00a0<\/span><\/p>\n However, the country was far from immune to the economic turmoil that struck when the Yom Kippur War in late 1973 compounded the collapse of the Bretton Woods system and subsequent stock market crash, catalyzing the first of the era\u2019s major energy crises. Economic disequilibria led gross national product (GNP) growth into negative territory, unemployment rose and the country faced difficulties servicing its external debts for a time. The worst impacted were the urban poor, who found themselves on the wrong side of dramatically increasing income polarization.\u00a0\u00a0<\/span><\/p>\n As an export-driven manufacturing economy with very limited natural resources, Korea was as heavily dependent on imports of energy and other raw materials in the 1970s as it is today (although thankfully the <\/span>energy intensity<\/span><\/a> of GDP is much lower now). The cost of these imports became a serious concern once global conditions worsened.<\/span><\/p>\n In 1974, earnings from exports rose 22% year on year but the cost of imports rose by twice as much \u2014 46%. The country had to absorb a net additional burden of no less than 6% of GNP in its import costs as a consequence.<\/span><\/p>\n Seoul predicted that unemployment would hit 6%. While that did not happen thanks to an unexpectedly quick economic rebound in 1976, a second energy shock starting with the Iranian revolution in Jan. 1979 saw a rerun of the same basic dynamic. Living costs rose by 25-30% in 1979 and 1980 while wages rose by only 12%, and this time unemployment really did reach 6%.<\/span><\/p>\n The economic recession brought on by the second oil shock contributed to the assassination of Park Chung-hee in Oct. 1979, a factor often overlooked but one that cannot be downplayed.\u00a0\u00a0<\/span><\/p>\n