[fn Editorial] Do not settle for the rebound in growth rate, focus on structural reform

There are continuous signals that South Korea's real Gross Domestic Product (GDP) growth rate is escaping from negative growth in the first quarter. The Bank of Korea predicts that the growth rate for the third and fourth quarters will be 1.1%, thanks to domestic recovery and strong semiconductor exports. If this forecast becomes a reality, South Korea's growth rate ranking among major countries is expected to be in the top 5. Compared to the first quarter growth rate of -0.2%, which ranked 31st among 37 major countries, this is a vertical rise. The economic growth forecast for South Korea next year is also positive. The average GDP growth forecast presented by 41 domestic and foreign institutions is 1.8%. There are even forecasts that a growth rate in the 2% range is possible the year after next.

It is fortunate to hear news of an upward revision in the growth rate amid concerns about falling into a low-growth trap. However, it must be remembered that the recent upward revision of the economic growth rate is only a sign of a short-term rebound. Other than the fact that domestic political uncertainty has eased compared to before, there has been no particularly positive change in the economic structure of South Korea. Therefore, we must face the harsh reality of the South Korean economy.

It is uncertain whether South Korea's growth rate forecast for this year will reach 1%. Even if it achieves a 1% range, it is still far behind the global economic growth forecast of 2.9% presented by the Organization for Economic Cooperation and Development (OECD). The forecast that next year's growth rate will rise to the 2% range is still lower than that of major advanced countries. Although it is a much better figure compared to the negative growth in the first quarter, it is still sluggish compared to other countries.

The fact that the recovery in growth is mainly dependent on exports such as semiconductors is also concerning. Economic growth is sustainable when supported by both exports and domestic demand. Economic growth that relies too heavily on exports is very vulnerable to external shocks. Instability in the supply and demand of international oil prices or fluctuations in grain and raw material prices due to global climate change are direct hits to exports. If international political and diplomatic instability escalates and a war breaks out, export trade will also be blocked. Therefore, revitalizing domestic demand is essential for balanced growth. Especially, a strong domestic base is the way to increase the public's perception of economic growth.

It should also be noted that the long-term outlook remains negative. According to an analysis by the Hyundai Research Institute, South Korea's potential growth rate is expected to remain at 1.6% from 2026 to 2030, and fall to 1.0% from 2031 to 2035. Compared to the potential growth rate of 4.7% in the early 2000s, it is felt that the growth engine is rapidly cooling.

Ultimately, it is not the time to be complacent about the fact that the simple economic cycle is improving. We must hurry to work on drastically changing the economic structure itself from now on. The new government's national tasks must have a specific detailed roadmap and speed up through legislation. Bold investments must be made to foster future core growth engines such as artificial intelligence, bio, and advanced manufacturing to expand competitiveness through productivity improvement. Social structural reforms, which previous governments proposed but became bubbles, must be tightened from the beginning of a strong administration. Haven't we experienced several times in the past that the momentum for reform inevitably declines as it goes into the latter half of the administration? There is no time to settle for a brief sign of rebound. It is time to put all efforts into structural reform and innovation to lay the foundation for long-term growth.