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Shipping containers fill the Busan Port on Tuesday. (Yonhap News)

The South Korean economy grew 4% last year — its highest rate in 11 years. This growth was the result of painstaking efforts by various economic actors, including the government and companies as well as individual households, amid the unprecedented catastrophe of COVID-19.

But in terms of the average growth rate for the past two years, we have yet to recover to pre-COVID levels. Moreover, we face not only continued uncertainties with the pandemic this year, but also a host of other obstacles including economic slowdowns in the US and China, long-term inflation trends, and financial austerity.

According to the 2021 real gross domestic product (GDP) figures released Tuesday by the Bank of Korea (BOK), the South Korean economy grew by 4% last year, its highest rate since 2010. This aligns with the growth rate target set by the government last year.

A number of factors contributed to this rate, including the baseline effect from reverse growth a year ago, along with private consumption, exports and government expenditures. While there had been some concerns that the target might not be met as the growth rate dipped to 0.3% during the third quarter of last year, the 4%-mark was narrowly cleared amid a rebound in private consumption in the fourth quarter.

The annual rate of increase in private consumption reached 3.6%, its highest level since 2010, while active fiscal expenditures by the government — including disaster relief funds — were seen as having contributed significantly to shoring up the economy.

But even if last year’s growth rate target was met, we also need to note the failure to return to pre-COVID levels.

The average annual growth rate for 2020 and 2021 was 1.5%, which falls well short not just of the 2.6% rate for the years 2018 and 2019, but also the South Korean potential growth rate, which is in the 2.5% to 3% range.

The trend is also apparent in employment indicators. The rate of employment for the population aged 15 to 64, which is seen as the best indicator of overall employment, stood at 66.5% last year — lower than the 66.8% rate in 2019. The industries that have suffered the hardest blows from the pandemic — namely wholesale and retail sales, food and hospitality — experienced large, sustained drops in employment over the past two years.

In December 2021, the South Korean government projected a 2022 growth rate of 3.1%. This prediction was based on the expectation that private consumption would continue to recover as economic actors adapt to COVID-19, while exports would maintain robust growth as overseas economic conditions improve.

But in addition to the anticipated constraints on economic activity as the Omicron variant of the COVID-19 virus has spread this year, there are also growing uncertainties in the domestic and overseas involvements, including fears of economic slowdowns in the US and China, a trend toward long-term global inflation, and the normalization of major economies’ monetary policy.

Given the extremely high burden of household debt in South Korea, some are predicting higher interest rates could lead to a drop in consumption and loan defaults by vulnerable borrowers. This translates into a high likelihood of difficulties meeting this year’s growth rate target.

Fiscal spending is of paramount importance now more than ever. The South Korean government will need to do all it can to normalize economic activity through effective disease control measures, while focusing its policy capabilities on supporting self-employed small business operators and other vulnerable segments, keeping prices stable, and managing global supply chains.

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