Five Painful Economic Truths for Korea as Election Approaches

  • The export powerhouse is losing steam and debt is piling up
  • Things aren't likely to improve much before the April 13 vote

Falling exports, rising unemployment, record household debt and stubbornly low inflation. These are some of the hot-button issues set to dominate debate as South Koreans go to the polls next month to elect members of the National Assembly.

Any erosion of support for the ruling Saenuri party in the single-chamber legislature would be a blow to President Park Geun Hye, who has less than two years remaining in her five-year term and hasn’t been able to push through bills to reform the labor market and services sector. The party, which holds 153 seats in the 300-member assembly, needs the support of more than 20 opposition lawmakers to bring bills to a vote.

Park’s goal of spurring economic growth to 4 percent is in doubt, with forecasts compiled by Bloomberg suggesting gross domestic product will expand less than 3 percent this year and next.

Saenuri’s approval rating is about 41 percent, compared with 20 percent for the main opposition, according to a Gallup Korea poll released on March 18. The major parties still haven’t finalized their candidates for the election and Gallup hasn’t released a poll on how many seats each may win.

While the outlook for the GDP of Asia’s fourth-largest economy is brighter than that of the U.S. or Europe, pressure is likely to increase for more government spending.

"Korean politics are more about ideology and regional divides, but a growing number of people are blaming the Park administration for the worsening job market and weaker-than-expected growth," said Kim Hyeon Wook, an economist at the SK Research Institute in Seoul. "The younger generation is especially unhappy about a lack of opportunities and they feel that social mobility is in decline."

The jobless rate in the 15-29 age group is the the highest on record. College students are delaying graduation to buy themselves more time to secure jobs and some are being encouraged to look overseas for opportunities.

Meanwhile, their parents have gone on a borrowing binge that’s pushed household debt to an unprecedented 1,207 trillion won ($1 trillion). Five cuts in the nation’s benchmark interest rate since 2013 and looser rules for mortgages are fueling borrowing.

Weakness in the international economy is hitting the country’s exporters, who are also facing problems in China. As Chinese companies move up the value chain, they are increasingly competing with Korean producers in global markets and making many of the specialized components they used to buy from their Asian neighbor.

Overseas sales, which account for about half of South Korea’s total economic output, have fallen for 14 straight months.

Inflation in Korea remains well below the 2 percent target that the central bank has deemed as appropriate for the healthy operation of the economy.

Without some improvement, this could bring deeper cuts in the benchmark borrowing rate, which could fuel even more household debt and bring the risk of larger capital outflows from Korea.

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