The Bank of Korea has released major economic statistics for last year, which showed that the Korean economy fared better than expected.
Gross domestic product expanded 3 percent, 0.2 percentage point higher than the previous estimate. The gross national income increased 4 percent on-year, with per capita gross national income hitting a record high of $26,205.
It is believed that vigorous exports, stable prices and improvement of trade terms combined to contribute to the growth of the economy. On the surface, the latest indexes can be seen as signs that the Korean economy has hit bottom and is on a recovery path.
But many people wonder why they don’t feel the effects of the economic growth. They complain of thin pockets in the face of high housing expenses, education costs, household debt, unemployment and so on.
For one thing, there were some “outside factors” that made the economy look better than it really was. The BOK adopted new standards, under which such sectors as research and development and defense acquisitions were added to GDP for the first time. The base year for GDP calculation was also changed from 2005 to 2010. The appreciation of the Korean currency should also be taken into account.
Even considering such factors, it is clear that ordinary citizens and households do not feel that the real economy improved. In fact, the personal gross disposable income, which gauges households’ real purchasing power, stood at $14,690 last year, which represents only 56.1 percent of the per capita gross national income.
This means that ordinary citizens are not making enough money. It is not surprising that private consumption only managed to grow 2.0 percent last year, slower than the 2.7 percent growth of government consumption.
One reason for the lackluster household consumption is that manufacturing, which creates fewer jobs and is less effective in redistributing income than services sector, is still leading growth. Last year, manufacturing expanded 3.3 percent, while services industries grew 2.9 percent.
Another problem is sluggish capital investment. Facility investment contracted 1.5 percent last year. In contrast, overseas investment expanded to 80.5 trillion won, a surge of 73.3 percent from the previous year. It is worrisome that more Korean firms go overseas seeking less administrative red tape, lower labor costs and higher productivity.
Underdeveloped services industries and lethargic investment are part of the structural problems of the Korean economy. This is why the government should keep fighting regulations to encourage investment and boost services sector, which are essential for creating jobs, expanding domestic demand and securing growth engines.