[Editorial] "3.6% Growth and $40,000 GNI" Are Welcome, But...

Lee Hyung-il, Deputy Prime Minister and Minister of Finance and Economy, speaks at a joint meeting of the Economic Affairs Ministers' Meeting and the Science and Technology Ministers' Meeting at the Government Complex Seoul on the 28th. Yonhap News Agency

The Bank of Korea said on the 27th that real gross domestic product (GDP) grew 1.0% in the third quarter from the previous quarter. Cumulative growth for the first three quarters was 3.6% year on year. If growth in the fourth quarter is 0.0% quarter on quarter, the annual growth rate would mathematically come to 3.6%. Since the likelihood of quarter-on-quarter contraction in the fourth quarter is low, this year's growth is expected to be at least 3.6%.

After reviewing the Bank of Korea's preliminary GDP estimate, the Ministry of Finance and Economy said that day, "It is all but certain that per capita gross national income (GNI) will enter the $40,000 range this year, 12 years after surpassing $30,000." The International Monetary Fund (IMF) projected per capita GDP of $44,000 this year, $49,000 next year and $52,000 in 2028.

This is certainly welcome news, reflecting the economic boom driven by the semiconductor supercycle. However, private consumption fell 0.2% in the third quarter from the previous quarter, marking a decline for the first time in four years. It was even weaker than in the fourth quarter of 2024 (0%), when consumption contracted amid the emergency martial law crisis. Exports are booming, but domestic demand is weak.

The Ministry of Finance and Economy said that although private consumption declined, its recovery is expected to gain momentum thanks to cash dividends from semiconductor companies in the fourth quarter and performance bonuses in the first quarter of next year. While private consumption is forecast to recover, this means the recovery will be centered on shareholders and employees associated with semiconductor companies. The fruits of the boom are therefore likely to be concentrated in certain companies and industries, as well as among high-income groups. The ministry also identified persistent structural problems, including polarization between the semiconductor sector and other sectors.

Economic polarization fuels relative deprivation and alienation, contributing to social discontent. That does not mean, however, that using excess tax revenue for handout-style support is advisable. Since productive investment leads to stronger growth, the government should work to expand investment in facilities and research and development (R&D) in non-semiconductor sectors, as well as productivity-related investment in the service industry. It is time to consider and implement policies to reduce polarization across industries, including by substantially expanding government financial support or tax benefits.

This content was produced with the assistance of AI translation services.