The South Korean Wealth and Economy in The World

South Korea is considered one of the wealthiest countries in the world with an exception economy that has been developed based on string economic pillars. South Korea has the 12th largest economy in the world, which has significantly developed through reliance on exports considering the fact that the country lacks natural resources and has a small domestic consumer market. The economy has grown from labor intensive to a highly revolutionized technology based that has been key to the development of a sustainable economy. This paper provides a detailed analysis of the south Korea economy through a review of gross domestic product, unemployment, inflation, recession and expansion, fiscal and monetary policies that form the background if the economy.

Introduction

The South Korean economy is well sustained based on strong macroeconomic stability and high-level focus on global commerce that has shaped the country economic development over the years. The government has put in place crucial measures, which have ensured that there is a positive focus on the underlying economic pillars. The anchoring of the country’s economy on manufacturing industry has ensured that the country has a strong economic background that is diverse.The South Korean economy has been strongly elevated by the high performing electronics and technology industry with major tech giant companies, Samsung and LG that have played a key role in boosting the country’s economy. In the current times, the country’s economy has been influenced by the increasing tension with North Korea over possible attacks due to long standing conflict.

The cost of living in South Korea has been on the rise in recent years with rent averaging between $1,200 and $ 1,500 with minimum wage at $1,300 that is relatively lower compared to other countries. The minimum wage has been raised at 7.3% in 2016, which is greater than consumer price index in 2016 thatwas at 1.3% (Cheng, 2017). The development over the years has been based on greater focus and integration of better economic elements that have been developed to improve the overall economic development in the country.

Gross domestic product

Increased investment in construction and growth in the country’s export have played a key role in the increase in gross domestic product at a very high rate in the recent 7 years. The current gross domestic product of South Korea in 2016 was 1.4 trillion dollars representing a 2.2% of the global economy. The South Korean average gross domestic product had initially averaged 405 billion dollars since 1960 until 2014 when it reached an all-time high of 1.4 trillion. The year 1961 represented the lowest gross domestic product at 2.36 billion dollars.

The South Korean economy over the last 50 years was significantly linked to effective fundamentals such as high saving rate, string human capital, cautious fiscal and monetary management as well as effective institutions(Cheng, 2017). The openness in trading has developed a crucial access to affordable imported immediate goods, advanced technologies and larger markets that have played a vital role in the country productivity growth. It is projected that the gross domestic product of South Korea will be at 1.8 trillion dollars by the year 2012 based on the existing structural planning and development process. This shows that the SouthKorea economy is developed on string economic pillars that are able to circumvent economic crisis and remain firm.

Unemployment and inflation

The calculated seasonally adjusted rate of unemployment in South Korea reduced slightly to 3.6% in October 2017 from the initial 3.7 in September 2017. This development is highly in line with the market expectation where it is expected that the unemployment rate falls significantly based on the measures that have been put in place. The average unemployment rate in South Korea since 1999 to 2017 has averaged at 3.6% with a high rating of 7.1% in June 1999 and the lowest ever recorded at 2.9% in November 2013. Even though the rate of unemployment in SouthKorea has stabilized at a low percentage than other advanced nations such as Russia, which has an average of 5.8%, and China having an average of 4.1%, there are specific factors, which are being influenced, negative.

The agricultural sector despite its small contribution to the country’s economy, it lost approximately 128,000 jobs. The financial and insurance sectors has also been negatively influenced with the existing 37,000 jobs that were lost in the past five years. However, in sharp contrast, the manufacture industry gained approximately 173,000 jobs while health and social welfare gained 153,000 jobs within the same period. It is very clear that the manufacturing industry in South Korea is very string that forms the basis of its large exports. The general focus in this case is that unemployment is not crucial issue to South Korea although they are putting in place critical structures to ensure that there is positive engagement. The rate of unemployment in South Korea is projected at 3.1% in the year 2022 (Cheng, 2017).

The rate of inflation in 2016 was 1.3% although the average rate of inflation over the years has been 1.1% putting the country at position 30 in global ranking. The rate of inflation in SouthKorea is much better than in most of the advanced economies such as the United States and the United Kingdom, which have a slightlyhigher inflation rate of between 1.5% and 2%. The key aspects within consumer price index are housing, gas and other fuels, electricity and water. Based on the existing economic development measures within the country, it is estimated that by the year 2022, the rate of inflation in South Korea will be at 2% (O’Malley, 2017).

Recessions and expansion in recent years

The South Korean economy is highly dependent on its exports, which have been on the rise in recent years. Therefore, its expansion has been significantly focused on outward sourcing economic policy that has been largely successful. South Korea does not have a large domestic market that means that it has been significantly engaged in integrating strategic partnerships with other countries in order to ensure that it is able to maintain its economy growth within viable limits. The country suffered indirect impact of the 2008 global recession (Ahn & Tsuchiya, 2016).

Partnering countries with South Korea were influenced by the economic hardships, which limited their purchasing power and thus limited the total exports that had a dip on the country’s gross domestic product. Most of the trade partners of South Korea who were affected by the recession are still struggling to recover fully and this has meant that the country’s economy grows gradually due to its high dependence on foreign markets for its prosperity.The fact that the country’s economy largely depends on its trade deals means that it is more likely to be influenced by the events in these countries. Currently, South Korea has a free trade deal with the United States that has been a significant boost to the country’s economic growth (Jung et.al., 2017).

South Korea has adopted an expansionary fiscal policy that is highly linked to job creation with a key objective of cutting down the rate of unemployment. A key focus has been to the increasing number of youths who are unemployed. The South Korean government has projected an economic expansion of 3% on 2017, which is the highest since 3.3% expansion in 2014. The increasing global demand for South Korean goods is also a positive sign that creates a clear environment under which it would be possible to have a greater economic development with increased fiscal spending from the $9.8 billion approved in supplementary budget in 2017. Exports are expected to grow by 10.2% due to increased demand (Dong et.al., 2017).

The bank of Korea has adopted a strategic monetary policy where a decision was made to maintain the base rate stable at 1.25% a decision that was expected within the financial market. The inflation target that has been set is at 2% and a consumer price index of approximately 1.9%. Domesticdemand, which is the main driver of economic growth and exports, remains weak while the household debt reached $1.2 trillion by the end of 2016 and has significantly weighed in on private consumption. The bank of Korea is expected to maintain its existing accommodative policy in 2017 as way to support economic recovery that is gradual (Park & Koo, 2017).

Types of economic policies that the country should employ

A key economic policy that South Korea should consider would be to diversify its foreign markets. This can be effectively achieved through signing of trade agreements with different countries in order to cushion its economicgrowth, which is highly dependent on its exports. South Korea was not affected by the global recession in 2008, however, the country was indirectly affected and it continues to recover at a slower pace based on the level its partners is recovering due to the influence caused by the recession.

Another economic policy that would be crucial in this case would be to focus on supply side policy. This will focus on creating an engaged environment under which it would be possible to maximize the existing global demands from the country’s goods as well as satisfying the domestic market that is crucial in economic growth.

Research that can help in choosing better policies in this case would be to review the key factors that are detrimental to the country’s economic growth in order to develop strategic policies that focus on these issues and develop a positive focus within country economic development.

Conclusion

South Korea is open of the countries in the world that have stable economy that is not susceptible easily to the changing global economic patterns. This was evident during the global economic crisis in 2008 where the country had a slight shift in its gross domestic product but was quick to recover by 2.3% increase in its gross domestic product showing the highest level of resilience. The economy is highly dependent on exports that means that is easily influenced by the economic development in its partner countries. There is need to develop effective economic policies which will focus on creating an improved economic development such as supply side policy.