{"id":2205671,"date":"2024-07-04T13:29:46","date_gmt":"2024-07-04T04:29:46","guid":{"rendered":"https:\/\/koreapro.org\/?p=2205671"},"modified":"2024-07-05T17:56:33","modified_gmt":"2024-07-05T08:56:33","slug":"south-koreas-economic-optimism-masks-growing-risks-and-vulnerabilities","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/07\/south-koreas-economic-optimism-masks-growing-risks-and-vulnerabilities\/","title":{"rendered":"South Korea\u2019s economic optimism masks growing risks and vulnerabilities"},"content":{"rendered":"
South Korean Prime Minister Han Duck-soo <\/span>presented an optimistic economic outlook<\/span><\/a> during a Cabinet meeting led by President Yoon Suk-yeol on Wednesday, citing strong growth rates and employment figures to project decreasing interest rates.<\/span><\/p>\n However, this positive narrative contrasts sharply with several key economic indicators that reveal significant risks and vulnerabilities in the ROK economy.<\/span><\/p>\n Han emphasized South Korea\u2019s <\/span>projected 2.6% growth rate<\/span><\/a>, positioning it just behind the U.S., and pointed to <\/span>record-high employment levels<\/span><\/a> as evidence of economic recovery. On interest rates, he expressed optimism, suggesting they could only decrease from the current <\/span>3.5% level<\/span><\/a>, potentially starting in the latter half of 2024.<\/span><\/p>\n The government\u2019s perspective extends beyond current indicators. Han credited Yoon with \u201cnormalizing\u201d the economy and contrasted the current economic state with that inherited from the previous Moon Jae-in administration, which he characterized as having \u201calarming deficits and necessitating multiple interest rate hikes.\u201d<\/span><\/p>\n This official narrative paints a picture of an economy that has overcome its challenges and is now on a path of growth and stability, suggesting confidence in the government\u2019s economic management and optimism about future prospects.<\/span><\/p>\n But this optimistic outlook overlooks the impact of weak business sentiment, the depreciation of the South Korean won and rising levels of household debt, all of which muddy the economic picture and require careful policy responses.<\/span><\/p>\n WEAKENING BUSINESS SENTIMENT<\/b><\/p>\n The manufacturing sector, a crucial component of South Korea\u2019s economy, shows signs of strain. Monday\u2019s <\/span>Korea Chamber of Commerce and Industry survey<\/span><\/a> revealed that the business sentiment index for the third quarter of this year has declined by 10 points, reflecting growing pessimism among the 2,238 surveyed manufacturing companies.<\/span><\/p>\n The businesses attributed this downturn to high interest rates and rising costs, which are squeezing profit margins and dampening investment plans.<\/span><\/p>\n Currency pressures present another concern. The South Korean won has significantly <\/span>depreciated against the U.S. dollar<\/span><\/a>. This has increased import costs of raw materials, partially spurring the declining business sentiment index.<\/span><\/p>\n While economic theory suggests that a depreciating currency may be beneficial for exporters by making goods cheaper in foreign markets, this has not been the case due to the concurrent and steeper depreciation of the Japanese yen.<\/span><\/p>\n This situation is particularly challenging for South Korea\u2019s automotive, steel and semiconductor sectors, which compete directly with Japan in many high-value export categories.<\/span><\/p>\n