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(News Focus) S. Korean economy faces slow growth amid growing competition, aging society

2013/11/04 11:24

By Byun Duk-kun

SEOUL, Nov. 4 (Yonhap) -- The South Korean economy is facing problems of the so-called slow, old and sandwich (SOS) which refers to its slow growth, due in part to the aging of society and its labor force, amid growing competition from its neighboring countries, market observers said Monday.

They noted the problems of SOS can be quickly confirmed through the fact that the most of the major local businesses have performed worse, with possibly the only exception of Samsung Electronics Co.

The observers singled out the problems of slow growth as the most urgent issue facing the country.

During the 1983-92 period, the country posted an annual average growth of 9.7 percent, nearly three times higher than the global average of 3.5 percent.

The country's growth rate, however, has steadily slowed since 2000, posting an average annual growth of 3.61 percent between 2003 and 2012, 0.22 percentage point lower than the global average of 3.83 percent.

The country's per capita income has also been sidestepping since it reached the US$20,000 mark in 2007 for the first time.

For nine advanced countries, including the United States, Japan and Germany, it took an average 9.6 years to bring up their per capita income from $20,000 to over $30,000, whereas South Korea's per capita income has risen less than $1,600 over the past five years from $21,590 in 2007 to $23,113 as of April 2013.

The country is also facing problems with the sheer speed of its major development projects, according to the observers.

It had taken less than 30 months for the country to complete the construction of the Seoul-Busan expressway in the 1960s, but the construction of the Seoul-Busan express railway took nearly 12 years just for the first phase, with the second development phase taking an additional six years and four months, they noted.

Such a problem stems largely from the fact that there are a significantly larger number of interest groups now, along with much more complex procedures.

The experts said the problem of slow growth also stems from the fact that the country's industrial structure, as well as its labor force, is aging quickly, cutting off their competitive edges.

Each of the country's 10 major products has been on the list of the largest export items for an average of 23 years while the average age of market leaders in each industrial sector is around 54 years, meaning the country's economy as a whole has seen little change, let alone renovation.

The country's labor force is also aging, along with the whole society, possibly causing a drop in its productivity.

As of the end of 2011, people aged between 15 and 29 accounted for 16 percent of the country's total work force, down 6.3 percentage points in just 10 years from 22.3 percent in 2001.

The average age of all people currently employed in 2011 rose to 43.8 years from 40.7 years in 2001.

The observers also pointed to growing competition from China and Japan as another reason for the slowing growth of the South Korean economy.

South Korea is geographically and politically wedged between two neighboring countries, but it is also sandwiched economically by the two superpowers, they said.

China, already the world's second-largest economy, is quickly narrowing its technological gap with South Korea, while Japan, which has technological superiority over South Korea, is gaining fresh competitive edge from a weaker currency.

The technological gap between South Korea and China has dropped from 2.5 years in 2010 to 1.9 years at the end of last year, according ot the Korea Institute of Science and Technology Evaluation and Planning.

China currently has 1,431 global leading products, while Japan has 229 top products. South Korea has only 61 such products.

A report from the World Economic Forum, released in September, showed the national competitiveness of South Korea at 19th place among 144 countries surveyed, a midpoint between Japan's 10th place and China's 29th.

The observers noted all such problems may have worsened, if not caused, by the lack of what they called a consistent government policy.

"It is almost suffocating that the government continues to demand the businesses make massive investments despite current uncertainties while offering no long-term vision for the economy," a senior official from a local firm said, asking not to be identified.

An official from the Federation of Korean Industries, the largest lobby of top businesses here, also noted a need for a consistent, long-term economic policy.

"Businesses cannot but lose confidence over their investment as government policies move back and forth," said Lim Sang-hyuk. "The companies are in dire need for a long-term economic policy even though they are no longer undergoing an era of government-led development."