Economic Indicators and Problem of Deflation in South Korea

The system of state regulation remains a decisive factor in the formation and development of the country's financial system. It is the main regulator of the export strategy through the development of five-year plans, the development of pricing, credit and tax policies. At the initial stage of industrialization, the most powerful lever for development was the public sector, which was formed on the basis of former Japanese property. The weight of the public sector in the country's economy is determined not only by the size of state enterprises, but also by the fact that in the hands of the state is the bulk of the national income distributed through the state budget.

South Korea’s economic growth is an example of the success of the country's most significant economic development. The Republic of Korea has achieved the so-called “economic miracle on the Han River” (Hanjhong, 1989). After the end of the Korean War in 1953, income per capita was only $ 67 the lowest income in the world. 40% of the infrastructure was destroyed, that is, more than 40% was in the industrial sector. Agricultural production is 27% less than before the war.

South Korea began economic reconstruction in 1962, its economy has become one of the fastest in the world. South Korea's economic transformation has been impressive. In less than 30 years, South Korea has developed rapidly from an agrarian country into an industrial and commercial one. There is currently an economic model for competition with other countries. South Korea's radical economic growth began during the government package of Jung Hee, who came to power in a military coup in 1961. Then he established his authoritarian regime. According to some scholars, his policy was due to a relatively short time, reflected in the state of development.

In the 1965s, agriculture accounted for 59.7% of total GDP, while service accounted for 27.9% , and manufactory at least 12.4%. Since the 2000s, the service began to be 63.3%, manufactory 32.1%, and agriculture 4.6%.

Nowadays South Korea’s Nominal GDP is $ 1.619 trillion. Its position is in 12th place in the world ranking of gross domestic product (GDP) last year and GNI is $31,349. Total exports is 605.2 billion dollars and South Korea the 5th large exporter in the world. This latter indicator represents an increase of 5.5% compared to the same period last year.

South Korea's top ten most significant exports include electronic integrated circuits driven by refined petroleum oils, automobiles, auto parts or accessories, cruise ships or cargo ships, and then mobile phones.

Two thirds (67%) of South Korea's exports in value terms in 2018 were delivered to other Asian countries, and 14.9% were sold to importers of North America. South Korea sent another 11.4% of goods to Europe. A smaller percentage came to Latin America (2.6%), excluding Mexico, but including the Caribbean, Oceania (2.3%), led by Australia and then Africa (1.7%).

The following groups of exported goods classify the highest value in US dollars in global shipments to South Korea in 2018. The top 10 exports of South Korea are relatively concentrated, accounting for 85.2% of the total value of its supplies. Also shown is the percentage that each export category represents in terms of total exports of South Korea.

• Electrical machinery, equipment: 184.6 billion US dollars (30.5% of total exports)
• Machinery, including computers: 77.7 billion dollars (12.8%)
• Vehicles: $ 61.2 billion (10.1%)
• Mineral fuels, including oil: $ 48.2 billion (8%)
• Plastics, plastic products: $ 34.9 billion (5.8%)
• Optical, technical, medical devices: 27.8 billion. Dollars (4.6%)
• Organic chemicals: $ 25.4 billion (4.2%)
• Iron, steel: 24.8 billion. Dollars (4.1%)
• Ships, boats: $ 20.3 billion (3.4%)
• Iron or steel products: 10.5 billion dollars (1.7%)

However, South Korea reduced its exports in July for the eighth consecutive month due to ongoing trade disputes between the US and China, increased tensions in Korean-Japanese relations, and falling prices for semiconductors and petrochemicals. According to preliminary data from the country's ministry of trade, industry and energy, last month exports fell 11% year-on-year to $ 46.14 billion. This is less than the 13.7% decline recorded in June, but is more significant than the average forecast of analysts polled by The Wall Street Journal, and accounted for 10.8%. Imports in July fell by 2.7% to $ 4.3 billion. In the previous month, the indicator collapsed by 10.9%, experts expected a decrease of 8.1%. As a result, the country's foreign trade surplus amounted to $ 2.44 billion against the expected $ 4.7 billion. Meanwhile, inflation in South Korea in July slowed to a minimum of three months. Consumer prices (CPI index) rose 0.6% year on year after rising 0.7% in June, the country's statistics office said. The consensus forecast was 0.9%.The slowdown was mainly due to lower prices for agricultural and fish products.

To solve the problem of deflation, the central banks of countries should lower interest rates (up to negative ones) in order to fill the economy with money and stimulate credit growth.

The South Korean budget for 2018 provides for an increase in spending of 7.1% compared with the previous year. In addition, in May, the country's authorities sent additional funds to support the economy.

The draft budget for next year includes an increase in social security spending, the allocation of funds for subsidies to private companies to stimulate the hiring of young people, as well as the creation of new jobs in the public sector, such as the postal service and the police, the ministry said.

The old model of the South Korean economy assumed an export orientation, but now this structure is unable to create enough jobs, experts say.

The country's new economic policy is focused on domestic consumption, and authorities are promoting measures to stimulate wage growth, increase homeowner incomes, and grow local startups to increase employment, especially among young people.

Unemployment among citizens of South Korea aged 25 to 34 in July of this year reached the highest level in 19 years at 6.4%, which is almost twice as high as the overall unemployment rate in the country.

The South Korean government believes that the planned increase in spending will not put serious pressure on the budget, given the country's growing tax revenues. The South Korean public debt, according to the official forecast, will fall in 2019 to 39.4% of GDP from 39.5% of GDP projected for the current year.

References

1. www.tradingeconomics.com
2. www.bloomberg.com
3. www.nytimes.com
4. take-profit.org
5. www.economy.com