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President-elect Park Geun-hye may not start her new government with all her appointees
selected but full team or not she will have to find ways to help the country cope with
the sluggish economy ahead.
So what challenges and economic trends will characterize the new administration?
We go to our Yoo Li-an for a wrap-up of Korea's key economic trends for 2013.
Before we take a look at the major economic trends of 2013, I want to first give you the
growth forecast for the year ahead.
For the most part, the Korean economy will continue to exhibit slow growth in 2013.
The Bank of Korea is predicting that GDP will grow by only 2-point-8 percent, making this
the second year the nation has seen a growth rate of below three-percent.
Now, if you take a look at the potential growth rate, which is an estimate of the economic
growth a country can sustain without causing inflation, It's an expected 3-point-4 percent.
So while Korea will see some recovery from last year, coming closer to the potential
growth rate, it will ultimately fall short of that once again.
One of the main reasons for the predictions of slow growth is related to the prospect
of weak exports in the coming year.
Exports make up half of the Korean economy, so the country is more exposed to swings in
global demand than most other countries in Asia.
And the recent appreciation of the Korean won against both the dollar and the yen is
pushing down demand for Korean exports.
The won has appreciated around 20-percent against the yen and it has risen around five
percent against the dollar in the past year.
The falling exchange rate is one of the reasons why major exporters have seen their operating
profits drop.
Hyundai Motors has seen its profits decline by over 10 percent in the last quarter and
its affiliate Kia Motor has seen its profits fall by half.
And Samsung says it's expecting to see around 2-point-seven billion U.S. dollars in foreign
exchange losses this year.
Businesses like these are expected to pursue low-cost, high-efficiency business structures
in the months ahead to combat the effects of external strains.
Next, the country's ongoing property debt problem will continue to threaten the economy
this year.
Korea experienced a major housing market slump last year, with housing prices dipping four-point-five
percent, the biggest decline since the Asian financial crisis back in 1998.
As you can see here on the graph, the number of housing transactions has dropped significantly.
And homeowners who borrowed heavily to finance their purchases are now facing pressure from
lenders to pay back their debts.
That's because Korean banks are reluctant to grant mortgage loans that exceed 60 percent
of home values.
With apartment prices plummeting, mortgage loans have jumped by around 16 percent last
year from a year earlier.
Now, with just about three weeks until Inauguration Day, let's take a look at the trends we can
expect to emerge under a Park Geun-hye administration.
First, there will be major reforms in the welfare structure.
Korea spends far less on welfare than other countries and this has been the case for a
long time.
If you take a look at this OECD report, Korea was second to last in terms of welfare spending.
But a third of this year's budget is dedicated to social welfare spending, so people are
expecting a wholly expanded welfare system and that's expected to include free childcare
across the board and broad reductions in college tuition.
But Park's welfare programs have sparked controversy among both her conservative supporters and
her liberal detractors over how the programs will be funded.
Critics say her welfare plan will cost twice as much as previously believed while some
conservatives are suggesting the plan scrapped.
So far, however, she hasn't budged.
So, welfare reform is on the way, but we'll just have to wait and see how many of Park's
programs will actually be feasible.
Finally, let's look at Park's concept of "creative coexistence."
President-elect Park has consistently emphasized the importance of national integration, be
it among generations, social classes, or large- and mid-sized businesses.
In terms of generations there is a major job polarization between young job seekers in
their 20s and those in their 50s.
The economic slump has put a limit on the number of available jobs
and the employment rate for young job seekers fell to a little over fifty-percent last year.
At the same time, the employment rate for baby boomers in their 50s seeking reemployment
after their retirement has risen consistently to over seventy-percent in the same period.
To balance to the polarization in the labor force, President-elect Park plans to expand
job creation efforts for the young and extend the retirement age for the baby boomers.
There is also polarization in the business world between large conglomerates and small-
to mid-sized companies.
Park is creating policies to give small companies the support they need to grow into medium-sized
enterprises and mid-sized companies the support they need to become conglomerates.
So to summarize, the economic recovery will be slow because of rising household debt and
weak exports, but if the new administration gets the policies it wants, we can expect
to see a more integrated and balanced society in 2013.
Back to you.
Thanks for that, Li-an.