Local perceptions of Korea’s economic and social conditions could be worse than the reality

Korea's 'new normal' growth to range from 2.5-2.8% by 2020.

Overly negative bias about Korea's economic and social conditions appear to have worsened local sentiment and the national mood, says Standard Chartered.

The research firm, which expects a 'new normal' range of of 2.5-2.8% throughout 2020 for the Korea's economy, suggests structural reforms and industrial restructuring are key to reviving sentiment.

Here's more from Standard Chartered:

South Koreans in their 20s and 30s have become extremely pessimistic about the domestic economic and social situation over the past few years. ‘Hell Korea’, a satirical phrase for the country’s current socioeconomic state, has become popular in online forums and spread to the mainstream.

In her Independence Day address, President Park criticised the wide use of the word ‘hell’ to describe the country, saying it depresses the national mood. In contrast to this dire perception at home, South Korea enjoys its highest-ever credit ratings from Moody’s and S&P, and it ranked 4th globally in the World Bank’s ‘Doing Business’ report for 2016.

Inside and outside views on Korea appear to be at odds with each other.

While Korea faces both cyclical and structural challenges, we believe conditions are far from ‘hellish’. We think this negative domestic bias stems from Koreans’ high economic and social standards, and sluggish progress on structural reforms. The country is no longer in the rapid development phase of the 1970-2000s, when growth and interest rates were much higher. In the current environment, slow progress on structural reforms in four key sectors – public sector, labour market, financial services and education – is eroding sentiment. 

We identify four key perceptions that drive this negative local bias: (1) growth is too low; (2) exports drive all of Korea’s growth, while the domestic economy is weak; (3) the wealth gap is widening; and (4) unemployment is high. While these concerns are valid, factual evidence shows a more nuanced and less negative picture.

Even so, turning around negative sentiment on the ground will be challenging, in our view. Proactive structural reforms and swift industrial restructuring are key to rebuilding positive sentiment and addressing these negative biases. While the current industrial restructuring push is making progress, major restructuring in the labour market is
unlikely ahead of the presidential election at end-2017, as it could trigger job losses.