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The Bank of Korea (Central Bank) recently released a report, slightly lowering its economic growth forecast for this year and next. Among them, the economic growth forecast for this year will be lowered from the original 3% to 2.9%, and the economic growth forecast for next year will be lowered from the original 2.9% to 2.8%. On the whole, South Korea's economic development will continue to maintain a slow recovery momentum, but changes in the domestic and international economic development environment have brought many uncertain factors to the South Korean economy.

    The Bank of Korea focused on the situation in the fields of domestic demand, investment, foreign trade, employment, and prices. Judging from the results, the good and the bad are mixed. South Korea’s economic growth rate in the first half of this year was 2.9%, and the economic growth rate in the second half of the year is expected to be 2.8%, and the annual economic growth rate is expected to be 2.9%. Among them, the contribution rate of domestic demand to South Korea's economic development has declined, and the contribution rate of exports to South Korea's economic development will increase.

    At present, domestic demand in South Korea maintains a positive momentum, and the people's consumption of ordinary goods and service industries is increasing. It is expected that the consumption level of the Korean people in the next stage will remain good. The South Korean government plans to increase fiscal expenditures on youth employment and promote an increase in basic wages. Therefore, domestic demand in South Korea will continue to develop in a good direction in the future.

    In terms of investment, in the first half of this year, South Korea’s equipment investment has dropped significantly, and construction investment has also declined slightly. The overall investment is in an adjustment period, and the future investment situation is not optimistic. It is expected that in the second half of this year, construction investment will begin to show negative growth, the annual negative growth may reach 0.5%, and it will continue until next year, and the rate will further expand.

    In the first half of this year, South Korea's export volume and export volume both increased, and the development momentum of foreign trade was sound. At the same time, rising international crude oil prices have led to rising prices of raw materials and consumer goods, leading to a corresponding increase in South Korean imports. In the future, this double increase in imports and exports will continue, and South Korea will continue to maintain a surplus in foreign trade. However, considering that the increase in the unit price of exported goods will slow down, and the increase in international crude oil prices may be difficult to change, the Korean surplus will decrease.

    In terms of employment, South Korea’s employment situation is poor. Affected by the poor operating conditions of the automobile and service industries and some manufacturing companies are undergoing institutional adjustments, the monthly employment growth rate in South Korea in the first half of this year has dropped significantly compared with last year, and the previously high unemployment rate has increased. As a result, the unemployment rate reached 4.1% in the first half of the year, and the employment situation is hard to say. Affected by the increase in international crude oil prices, domestic prices in South Korea have risen this year, and they are likely to continue to rise in the next stage.

    The Bank of Korea also gave hints on the risks that the future economic development will face, including trade protectionism, uncertainty in the economic and monetary policies of major economies, and so on.

    Song Jingjin, director of the Korea Institute of World Economics, said in an interview with the Economic Daily News that the biggest negative impact on South Korea’s economic development is trade protectionism. South Korea’s economic dependence on foreign trade is as high as 67%.

    According to the calculation of the Korea Development and Research Institute, if the volume of international trade transactions decreases by 1%, South Korea’s exports will drop by 1.08%, and South Korea’s economic growth will decrease by 0.48%. If the volume of international trade transactions continues to decrease, the negative impact on South Korea’s economy will inevitably increase, and South Korea will inevitably face huge losses.

    Song Jingzhen believes that interest rate hikes in major economies such as the United States will also have a considerable impact on South Korea. If the United States and other major economies raise interest rates, in order to prevent capital outflows, South Korea will also raise interest rates accordingly. However, South Korea’s current household debts remain high, which has constrained South Korea’s interest rate hikes, and a dilemma will appear. In addition, rising international oil prices will also adversely affect South Korea's economy. South Korea’s economy is very sensitive to international oil prices. According to estimates, for every 10% increase in international oil prices, South Korea’s economic growth rate will drop by 0.16%.

Launched "Super Budget" to boost the economy

 The South Korean government recently announced the draft budget for 2019, totaling 470.5 trillion won (approximately US$420 billion), with a view to boosting the economy, expanding employment and increasing welfare. The total budget of this draft increased by 9.7% over the previous year, the largest increase in 10 years, so it was called the "super budget" by the Korean media.

 The draft involves 12 major areas. The budget for health, welfare, and labor is the largest among all expenditures, at 162.2 trillion won (approximately US$146 billion), of which the budget for employment has increased by 22%. In addition, the education budget is 70.9 trillion won (approximately US$64 billion). The sum of these two areas accounts for almost half of the entire budget.

 The budgets for industry, small and medium-sized enterprises, energy and R&D sectors have increased by 14.3% and 3.7% respectively, aiming to promote economic innovation growth. Among all expenditures, infrastructure investment is the only area that has decreased.

 Against the background of increasing international trade frictions and the prominent tendency of U.S. trade protectionism, South Korea's economy, which is highly dependent on exports, is facing many challenges. The South Korean government is trying to drive economic growth by increasing national income.

 In response to this draft budget, South Korea’s Deputy Prime Minister and Minister of Planning and Finance, Kim Dong-yan, said that considering that taxes and overall fiscal revenue will increase next year, the government has decided to expand fiscal expenditures to create jobs, stimulate the economy and improve the quality of life of the people.

 The South Korean government's "super budget" has caused controversy in the country. Jin Tainian, chairman of the ruling party’s Common Democratic Party Policy Committee, believes that the draft budget reflects the government’s efforts to create more jobs, increase economic vitality, and expand the social safety net. The Common Democratic Party also believes that the government uses a considerable part of its budget to stimulate the development of an innovative and growth-oriented economy, and will focus on the development of new technology projects such as artificial intelligence and big data, which will help South Korea better meet the fourth wave of industrial revolution.