Is S. Korea's economy as robust as its export goods?

Concerns are growing that the South Korean economy will potentially decline into a low-growth phase, as forecasts suggest low growth in the one percent range for this year and the following year. To get a glimpse into what this vague era of low growth will be like, let’s take a look at Europe. The Eurozone (20 countries that use the euro) mostly experienced growth rates of one percent or less, with only four exceptional years from 2011 to last year. Eurozone members may be regarded as “seniors” on the path to low growth.

The European stock market could be a preview of what awaits individual investors in the South Korean market. Foreign investors and even European companies alike are turning away from European stock exchanges. Last Wednesday (local time), TotalEnergies, one of France's top 5 companies by market capitalization, declared its intention to go public on the New York Stock Exchange. Although the company tried to calm public concerns by stating that it would not delist from the French Stock Exchange or relocating its headquarters, it remains to be seen what will happen in the long-term future. Meanwhile, German chemical business Linde has already left the Frankfurt Stock Exchange.

The example of TotalEnergies clearly shows why the European economy has slowed down. Its shift toward New York is primarily due to the lack of vitality in European stock markets. Many argue that the growth of European financial markets is held back by complex listing procedures and financial product regulations. Moreover, governments' excessive environmental regulation may have also played a role.

Another factor behind the continent's low growth trends is that consumers are too frugal. The savings rate in Europe reached 15.7 percent in the second quarter of last year, compared to about 12 percent during the normal times before the COVID-19 pandemic began. This may imply that consumers have grown anxious. With a lack of confidence in the future economy, they delay spending and investments, thus saving money in their bank accounts.

This year, the average economic growth rate for European Union (EU) member countries is also expected to remain around 1.5 percent. Indeed, Europe appears to be trapped in the swamp of low growth. Feeling a sense of urgency, the EU assigned European Central Bank (ECB) President Mario Draghi to devise a solution. In Draghi’s report examined with the curiosity of someone peeping at his friend’s answer sheet, the message is rather surprisingly obvious. It talks about bolstering industrial policies, easing regulations, strengthening capital markets, and promoting technological innovation. To be honest, these are also not new strategies in South Korea.

Examining the details of these measures, it is clear that they all require sustained effort from a long-term perspective. The reason neither the South Korean government nor businesses can properly implement such obvious solutions is presumably due to a culture prioritizing immediate returns.