Seoul Tries To Balance Social Concerns With Economic Issues

This story is part of Forbes’ coverage of Korea’s Richest 2022. See the full list here.

South Korea recovered from a pandemic-driven decline to end last year on solid ground. The world’s tenth-largest economy (and the fourth-largest in Asia) posted GDP growth of 4%, its strongest performance in over a decade, thanks to a record surge in exports. That momentum, however, is expected to diminish in 2022 as global headwinds build.

Goldman Sachs Research recently cut its full-year economic growth forecast to 2.8% on weaker global demand for South Korea’s chips, cars and petrochemicals and other key exports. The Russia-Ukraine conflict and surging oil and energy prices could also have a significant economic impact.

The country’s major firms say rising raw-materials costs are the biggest risk to investment this year, underscoring the potential for inflation to weigh on GDP growth. Headline CPI is expected to stay above the Bank of Korea’s 2% medium-term target—a key risk to macroeconomic stability. The central bank has already raised its benchmark rate three times since August to tackle higher prices.

South Korea’s ratio of household debt to GDP is roughly 106%, with the average family in debt 18 times their annual wages. This has put the country at risk of a housing market crisis that could further impact the value of the won—one of Asia’s worst performers so far this year against the U.S. dollar—and the government’s ability to service its own debts. The rapid spread of the omicron variant, which saw Covid-19 infections rise to an all-time high in March, also poses a threat to the economy’s trajectory.

The government faces some tough decisions as it balances social concerns with economic issues. Incoming president Yoon Suk-yeol sees innovation as the only way forward for Korea Inc., and is expected to focus on pro-business deregulation while reining in government spending to spur growth.