Editorial: Anticipated Decline in Dollar-Converted GDP—Strengthening Economic Fundamentals Is Essential

This year, the Gross Domestic Product (GDP) measured in US dollars is projected to decrease. The sharp rise in the US Dollar–South Korean Won exchange rate since the beginning of the year has played a significant role. According to the International Monetary Fund (IMF), South Korea’s nominal GDP in dollar terms is forecast to reach $1.8586 trillion this year, a reduction of $16.8 billion (0.9%) compared to last year.
The IMF expects that the nominal GDP in won will increase from 2,557 trillion won last year to 2,611 trillion won this year, a 2.1% rise. This figure reflects the real economic growth rate projection (0.9%) adjusted for inflation. To compare GDP internationally, exchange rates must be considered. The average exchange rate from January to November this year was 1,418 won per dollar, 4.0% higher than last year’s average. If the recent surge in exchange rates continues, the annual average will climb even further.
If the dollar-converted GDP retreats, previous expectations that per capita GDP would reach $40,000 within two years will no longer hold. The main concern is the entrenchment of the exchange rate in the 1,400-won range. Japan’s per capita GDP has lagged behind South Korea and Taiwan largely because of the persistent rise in the USD/JPY exchange rate.
When the exchange rate rises, people’s livelihoods become more difficult, as import prices—including fuel—go up. This is why GDP is often converted to dollars for international comparisons. No matter how much GDP increases in won terms, a higher exchange rate erodes its value. Managing the exchange rate is necessary not only to boost GDP but also to stabilize the lives of citizens.
A weak won indicates that the fundamentals of our economy are not strong. While a higher exchange rate can benefit exports, and increased exports are certainly advantageous for the nation, the negative effects—such as rising import prices—tend to outweigh the positives. Although a low exchange rate is not always ideal, if it exceeds an appropriate level, it can have adverse macroeconomic impacts and make daily life more challenging. The result is a decline in per capita GDP.
There are several reasons why the exchange rate is rising despite no issues with foreign reserves. It suggests that more capital is flowing overseas as foreign investment increases. While the recent rise in the exchange rate does not necessarily indicate an economic crisis, a prolonged period of high exchange rates could become problematic.
The government has few effective tools at its disposal. It could consider reducing investments by the National Pension Service (NPS), a major player in overseas investment, but cutting back on potentially profitable investments would be a national loss. As a result, the only remaining option is to continue seeking currency swaps with countries like the United States. However, with the US effectively rejecting these proposals, the government faces a difficult situation.
Ultimately, the only solution is to build a stronger economy. We must produce better products, boost exports, and create an environment that attracts foreign investment. The nation’s economic strength must be increased so that foreign capital flows into the country. We still remember the economic crisis during the foreign exchange crisis, when high exchange rates nearly brought people’s livelihoods to the brink of collapse. The government, businesses, and citizens must all work together to strengthen the fundamentals of the economy.