South Korea's economy may be on the path to a speedy recovery from the fallout of the COVID-19 pandemic.
The Bank of Korea said Tuesday that the country's annual Gross Domestic Product shrank one percent last year, marking the first contraction in 22 years, but it managed to post positive growth figures for the second half of 2020, after dipping to as low as minus 3.2 percent after the pandemic broke out.
As South Korea took swift action to contain the virus, and benefited largely from the surge in demand for fast processing memory chips, the country was able to minimize the economic fallout from the virus to the smallest margin seen among 11 advanced economies.
The International Monetary Fund now predicts South Korea's GDP will grow 3.1 percent this year, an upward revision from its previous outlook of 2.9 percent. and combined with growth in 2020 this would mark the highest growth rate seen among major economies.
Today we discuss what's needed to prop up the numbers and whether this growth is sustainable.
I'm joined by Troy Stangarone, Senior Director and Fellow at the Korea Economic Institute of America. It's great to see you again. Thanks for being here.
We also have Oh Joon-seok, business professor at Sookmyung Women's University in Seoul. Thank you for joining us.
1. Dr. Stangarone: South Korea managed to post positive growth figures in the second half of 2020. Will South Korea be able to sustain this growth trajectory in 2021 and beyond, or was growth in 2020 a temporary phenomenon caused by the impact of the pandemic on other major economies?
2. Dr. Oh: South Korea's GDP growth last year was largely attributed to the sale of semiconductors. But we can't rely on memory chips alone, as the last three or so years have shown us. Is there a need to move away from chips or diversify our key export items?
Dr. Stangarone: One of the factors that's expected to drive recovery is South Korea's initially fast response to the pandemic last year. However, South Korea is falling behind in terms of rolling out a wide-scale vaccination. Are there any economic risks to this?
Dr. Stangarone: With South Korea being an export-dependent economy, it reacts sensitively to the global trade environment and for the last couple of years, it's suffered from the rise of protectionist policies around the world. Now, U.S. President Biden has made it clear he won't be focusing on trade for the time being, as long as the pandemic continues to blaze across the country, and he also aims to ramp up production at home. Some expect Joe Biden to mostly retain Trump's trade policies do you agree with that? What challenges will Korean companies face, or continue to face, with Joe Biden's 'Buy American' policy?
Dr. Oh: Do you think it's likely that Biden will retain protectionist policies and how should Korean businesses prepare?
Dr. Oh: There's a lot of talk as to whether South Korea will join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. What will it get out of the agreement by joining at this point, and will it lose out on some aspects because it joined too late?
Dr. Stangarone: President Moon last year launched the country's Green and Digital New Deals as a means of creating new growth engines for the South Korean economy. But many say those deals are rather shallow, as they are top-down, pour millions into creating public sector jobs and lack ambition on reaching global standards, for instance, in climate technology. What's your view, and what fundamental challenges does the country need to overcome to make economic growth sustainable?
Dr. Oh: While the overall GDP has done much better amid the pandemic, consumption levels haven't picked up dramatically. Can the government bolster the local economy in a way that is concrete and sustainable?
This is where we have to wrap up the discussion today. That was Troy Stangarone, Senior Director and Fellow at the Korea Economic Institute of America, and Oh Joon-seok, business professor at Sookmyung Women's University in Seoul.
Thank you both for your time.