"South Korea Faces High Risk of Falling into Middle-Income Trap"

Hyundai Research Institute Announces 2020 Top 10 Domestic Trends Report
"We Must Revive the Function of the Free Market Economy"

[Asia Economy Reporter Kim Hyunjung] Concerns have been raised that the Korean economy is losing its recent dynamism and risks falling into the middle-income trap. To overcome the crisis of sustained low growth, it is advised to revive the fundamental function of the economy, the 'free market economy.'

On the 27th, Hyundai Research Institute announced the 'Top 10 Domestic Trends of 2020,' stating that as the Korean economy has recently lost its economic dynamism, there are concerns about falling into the middle-income trap rather than entering the advanced country trajectory. Among the top 10 domestic trends, four economic-related trends were selected: ▲ the crossroads between substantial growth and acceleration ▲ back to the basics ▲ export formula turning into an empty formula ▲ debt economy.

Joo Won, Head of Economic Research at Hyundai Research Institute, said, "Although Korea boasts that it has joined the ranks of advanced countries, the recent rapid loss of economic dynamism makes it difficult to rule out the possibility of falling into the middle-income path due to lack of substantial growth." He pointed out, "If issues such as low growth, long-term liquidity traps, and welfare dependency are not overcome, there is a possibility of decline from an advanced country to a middle-income country."

Korea's per capita Gross National Income (GNI) reached the $20,000 range in 2006 and entered the $30,000 range in 2017, placing it at the lower threshold of advanced country income standards. Joo predicted, "Last year, due to a sharp drop in economic growth rate, a decline in the GDP deflator, and the depreciation of the Korean won, a negative growth in per capita GNI is expected compared to 2018 ($33,434). This possibility of stagnation is expected to continue in 2020."

He emphasized that to restore economic sentiment, it is necessary to establish market economy principles and expand productive welfare to improve efficiency within the economy.

Researcher Hong Junpyo, who co-authored the report, echoed the same perspective. Regarding this year's economic trend of 'Back to the Basics,' he said, "To overcome the crisis of sustained low growth, it is urgent to implement strategies and policies faithful to the fundamentals of the economy." He added, "This includes strengthening corporate capabilities for deriving and developing new growth and new industries, as well as expanding labor input intensity to raise potential growth rates."

He continued, "As the economic downturn persists and fiscal expansion policies are underway, the need to manage fiscal deficits is increasing," and predicted, "There will also be a spread of efforts to strengthen speed and agility capabilities for companies to respond proactively to uncertain conditions." Furthermore, he stated, "In response to weakening labor input, it is necessary to expand high value-added industries and the influx of highly skilled immigrants," and "Policies and systems centered on final consumers in the market, rather than suppliers, must also be strengthened."

He argued, "There is a need to spread social consensus that innovation and competition drive new industries and enhance growth potential, maintain the government's regulatory improvement stance, and establish flexible corporate organizations that can quickly respond to changes in consumer trends."

Meanwhile, Hyundai Research Institute also identified trends in other fields in the report released that day. In industry and management, they selected ▲ Youkeo Season 2 ▲ the era of charging; in society and culture, ▲ Encore Active Senior ▲ the spread of communities for oneself ▲ the rise of fandom economy; and in unification, ▲ 2020 Peace Economy: 4C as this year's trends.