The economic policy plan for 2021, which was unveiled last week by the Ministry of Economy and Finance, set the annual growth goal at 3.2 percent, a sharp rebound from this year’s estimated contraction of 1.1 percent.
The ministry said the plan was designed to facilitate a “fast and strong” recovery and transform the country into a “pacesetting” economic power in the post-pandemic era.
But the rosy growth outlook seems beyond reach, as the economic policy plan takes no account of a recent rapid resurgence in confirmed coronavirus cases and lacks substantial measures essential to revitalize South Korea’s economy.
The latest growth forecasts by economic institutions at home and abroad were lower than the government’s projection, though they were made before the country was hit by the winter wave of coronavirus infections. The Bank of Korea last month predicted Asia’s fourth-largest economy would grow 3 percent next year and the economic outlook report released on Dec. 1 by the Organization for Economic Cooperation and Development estimated Korea’s 2021 growth rate at 2.8 percent.
At a press briefing on the economic policy plan for next year, Vice Finance Minister Kim Yong-beom suggested the government would have to revise down its growth outlook if the strengthening of social distancing rules increased downside risks.
The plan relies mainly on continuous fiscal expansion to help reinvigorate the economy, but does not put forward concrete steps needed to vitalize the private sector.
Early this month, the National Assembly approved a record 558 trillion-won ($504 billion) national budget for next year, which includes nearly 4 trillion won in an additional coronavirus relief package to be implemented as early as January. The Finance Ministry plans to frontload 63 percent of the budget spending in the first half of 2021 to bolster recovery momentum.
The planned increase in fiscal expenditure is set to be spent mainly on infrastructure projects and creating mostly temporary jobs in the public sector.
The government will also implement a set of measures to boost private consumption, including additional tax benefits for card spending and reductions in consumption tax on car purchases, as well as issuing gift vouchers and holding nationwide shopping festivals.
These efforts are insufficient to boost sluggish domestic demand. Conspicuously missing from the 2021 economic policy plan are measures to encourage companies to increase investment and employment.
Since taking office in 2017, President Moon Jae-in’s administration has pushed for ill-conceived policies such as the income-led growth drive, which have sapped corporate vitality.
It has shunned regulatory and labor reforms and raised the maximum corporate tax rate, swimming against the current global competition to forge more business-friendly conditions.
Moon and his aides did nothing to persuade ruling party lawmakers to refrain from ramming through three controversial bills imposing additional regulatory burdens on companies early this month.
After the parliamentary passage of the bills, Moon called for the positive perception that the measures would help enhance global competitiveness rather than bring more difficulties to corporations. His remarks flatly ignored concerns repeatedly raised by corporate leaders that the enactment of the bills would further worsen business sentiment and hold back companies from making new investments.
A string of anti-corporate measures could also hamper efforts by Korean manufacturing exporters to maintain and strengthen their competitive edge over foreign rivals.
The government expects the country’s outbound shipments to grow 8.6 percent on-year in 2021, rebounding from this year’s estimated contraction of 6.2 percent. If exports continue to remain sluggish amid slumping domestic demand, Korea’s growth rate might be far below 3 percent next year.
What should draw attention from Moon and his economic team is the outcome of a recent survey of 212 local firms hiring more than 30 workers. It showed 60 percent of the companies polled plan to cut investments next year with 65.4 percent set to cut their payrolls. More than 52 percent expect to see a decline in operating profits.
The Moon government should discard its hollow rhetoric and carry out a fundamental shift in its economic policy to avoid pushing the economy into a worse predicament.