South Korea: Briefing sheet

Content Type
Country Data and Maps
Institution
Economist Intelligence Unit
Abstract
No abstract is available.
Topic
Politics, Summary, Outlook, Briefing sheet
Political Geography
South Korea

Political and economic outlook

  • South Korea is the fourth-largest economy in Asia. Reliant on exports, it excels in electronics, automotive and shipbuilding, which makes it sensitive to fluctuations in external demand and geopolitical challenges such as the ongoing US-China trade conflict.
  • The Economist Intelligence Unit now expects a candidate from the conservative opposition to win the 2022 presidential election. Policymaking will be hindered after 2022, owing to conflicts between a conservative-led government and Minjoo Party-controlled parliament.
  • The government will maintain an accommodative fiscal stance and focus on job creation and export-oriented manufacturing to spur economic growth. Plans to promote industrial digitalisation and green energy will increase productivity in the medium term.
  • The economy will rebound in 2021 on the back of strong external demand, particularly for electronics and health products, and resilient fixed investment. South Korea will become one of the first OECD countries to recover to pre-pandemic levels of real GDP.
  • A wide current-account surplus will support South Korea's currency, the won. It will be among the better performing emerging-market currencies in 2021-22, owing to South Korea's rosy growth outlook and wide current-account surplus.
  • South Korea's economy will grow more quickly than that of Japan in 2021, owing to better management of domestic coronavirus (Covid-19) outbreaks. Investment plans for digital and clean energy infrastructure will also support growth in the medium term.
  • South Korea will work with the US to push for a resumption of denuclearisation talks with North Korea, but the North will not relinquish its nuclear programme for sanctions relief.
Key indicators
  2020a 2021b 2022b 2023b 2024b 2025b
Real GDP growth (%) -0.9 3.2 2.7 2.6 3.1 2.8
Consumer price inflation (av; %) 0.5 1.5 1.9 1.6 1.7 1.5
Government balance (% of GDP) -5.2c -4.7 -3.7 -3.1 -2.8 -2.5
Current-account balance (% of GDP) 4.6 4.3 4.1 4.1 3.7 3.6
Money market rate (av; %) 0.7 0.5 0.7 1.1 1.4 1.6
Unemployment rate (%) 3.9 4.3 3.9 3.7 3.6 3.6
Exchange rate W:US$ (av) 1,180 1,126 1,122 1,134 1,142 1,137
a Actual. b Economist Intelligence Unit forecasts. c Economist Intelligence Unit estimates.

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Key changes since March 30th

  • We now forecast that the conservative opposition will retake the presidency in 2022, as the mayoral by-elections in Seoul (the national capital) and Busan, South Korea's two biggest cities, revealed sharp decreases in public support for the ruling Minjoo.
  • A conservative-led government from 2022 will use tax incentives and deregulation to increase revenue and boost economic growth. It will also be less keen on reforms to the labour market, corporate governance and the prosecution system.

The month ahead

  • April 27th-GDP data (Q1): We expect the pace of real GDP growth to have moderated in the first three months of 2021, owing to resurgent coronavirus infections and an ensuing tightening of social distancing rules.

Major risks to our forecast

Scenarios, Q1 2021 Probability Impact Intensity
Resurgent coronavirus outbreaks in major overseas markets halt a recovery in exports High High 16
A correction in property prices in Seoul leads to a financial crisis Moderate High 12
A cyber-attack cripples financial infrastructure Moderate High 12
An influx of North Korean refugees in South Korea increases social tensions and economic strains Moderate High 12
Slumping profitability forces banks to reduce lending Moderate High 12
Note. Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential developments that might substantially change the business operating environment over the coming two years. Risk intensity is a product of probability and impact, on a 25-point scale.
Source: The Economist Intelligence Unit.

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