2020 Economic Policies

 

 

Outcomes of the 2019 policies

The government has sought inclusive growth and industrial innovation since the start of the current administration, which shifted the country’s growth paradigm into an ‘innovation-driven and inclusive’ one.  Over 2019, the government has worked hard to boost the economy through expansionary fiscal spending, and as a result employment data showed an improvement in terms of both the number of jobs and employment status.  Framework measures for industrial innovation have been completed, which cover the plans to restructure manufacturing and services, develop the new core industries of data, networks and AI, and promote the three new promising industries of a system on a chip, biohealth and future cars.  The government also worked for a second venture boom, strong employment support and social safety nets, which led to improved distribution indicators, and supplementary measures to help the 52 hour workweek run smoothly.  However, the private sector has not yet picked up, as well as the country’s growth potential. 

 

Background

Although uncertainties linger, the global economy is expected to improve next year and the semiconductor market will likely rebound.  At home, the government’s expansionary fiscal and monetary policies will help boost the economy despite construction continuing to slow down.  The employment support and social safety nets which will be strengthened in 2020 will act positively for the economy, but the country’s economically active population will begin to shrink and fast ageing population and digitalization will place a burden on the real economy.  Growth potential is not likely to pick up soon and single-person households are increasing.

Against this backdrop the government has made the country’s economic outlook for 2020 and drawn up the 2020 economic policies.

 

2020 Outlook

- Growth:  Annual growth of 2.4 percent is expected.  Exports and investments are projected to grow amid improving global economies and recovering semiconductor demand, as well as helped by policies to boost investment and domestic consumption. 

- Employment:  A total of 250,000 jobs are expected to be added to the economy, the employment rate improving from 66.8 percent to 67.1 percent.

- Inflation:  The annual consumer price inflation is projected to be 1.0 percent, rising from 0.4 percent of the previous year.

- Current account balance:  Current account surpluses are expected to improve to US $59.5 billion as global economies and semiconductor markets are expected to recover.  Exports are projected to grow 3.0 percent, and imports to rise 2.5 percent.

 

 

	2019	2020
GDP growth (%)	2.0	2.4
Employment growth (thousand) Employment rate (%, aged 15-64)	280 66.8	250 67.1
Consumer price inflation (%)	0.4	1.0
Current account (US $billion)	58	59.5

 

Framework for the 2020 Policies

The 2020 policies have been drawn up to help regain growth momentum with the following four pillars in mind:

- Promote industrial innovation

- Restructure the economy

- Pursue inclusive growth

- Prepare for the future

 

The government has selected eight tasks to help boost the economy and achieve inclusive growth, and five areas for innovation.

 

Eight tasks to help boost the economy and achieve inclusive growth

- Promote reshoring through 100 trillion won worth of investment promoting programs and tax support

- Promote tourism

- Help the country’s data economy take off

- Help develop manufacturing supplies, such as high tech materials and manufacturing equipment

- Find solutions to conflicts of interest involved in new businesses

- Increase jobs for young adults, women and those in their 40s

- Work on elderly poverty, support the first income quintile households and prepare for rising single-person households

- Support the self-employed

 

Five areas for innovation

- Innovation in industries

- Innovation in the labor market

- Innovation in the public sector

- Preparation for demographic changes

- Innovation in regulations and institutions                                                                                               

 

2020 Economic Policies

1. Regain growth momentum

- Promote investment

1) Work for 100 trillion won worth of investment to be made through large-scale corporate projects, public sector projects and private investment in public projects

2) Provide financial and tax support to promote private investment:  Introduce a 4.5 trillion won worth of facilities investment support, increase tax deduction rates for smart manufacturing investment and extend accelerated depreciation

3) Increase reshoring support to achieve the reshoring of more than 90 businesses by 2020

4) Draw up plans to encourage private investment in public projects, and introduce special regulations on free economic zones to make them more business friendly

 

- Promote domestic consumption and tourism

1) Work on the VAT refunding of anchor products purchased during the Korea Sales Festival and refund some of the prices paid for energy-efficient home appliances

2) Work to attract as many as 20 million foreign visitors:  Expand the relaxed visa requirements to Southeast Asian tourists, such as visa free transfer for group tourists and more cases of fast issuance

3) Promote local tourism:  Work for a total of 380 million local tours to be made in 2020, such as through income tax deduction for travel expenses and temporary tax reduction of 75 percent for purchasing golf club memberships

4) Expand on-arrival duty free shops to major airports nationwide, including Gimpo Airport, items to be sold also increased

5) Reduce car sales taxes for purchases made by those who want to replace their old cars after more than 10 years of driving

 

- Expand construction investment

1) Increase SOC investment to 23.2 trillion won to improve safety, and community SOC investment to 10.5 trillion

2) Increase housing supply:  Work for the ground breaking of 82,000 housing units in 2020, as well as young adult rental housing

3) Urban renewal:  invest at least 5 trillion won over the next three years

 

- Promote exports

1) Help boost exports:  Work for the successful implementation of the export boosting measures announced last September, which contain plans to diversify export markets and export items, promote venturing into new markets and help take advantage of K-markets, such as K-pop and K-beauty

2) Provide export financing worth 240.5 trillion won

3) Raise biohealth funds worth 100 billion won to help export medical services and pharmaceuticals

 

- Stimulate local economies

1) Raise 100 billion won worth of local economy funds and increase local venture capital funds

2) Ease requirements for local investment support to promote investment in local economies

3) Take off the Balanced Development of the Country, composed of 23 projects worth 25.2 trillion won, and require a part of each project to be subcontracted by local firms

 

- Strengthen risk management

1) Closely monitor the five areas that may pose risks to the economy:  Housing markets, household debt, financial markets, trade and corporate restructuring

 

2. Promote industrial innovation

- Develop next generation growth engines

1) Provide a support package, including tax incentives, to promote investment in 5G technologies, and promote a system-on-a chip, AI, secondary batteries and robots as post-semiconductor growth engines

2) Strengthen manufacturing:  Pursue industrial convergence, as well as smart and environment-friendly manufacturing, and buy one trillion won worth of P-CBOs issued by small- and medium-sized manufacturers of major industries

3) Invest in manufacturing supplies and equipment, including high tech materials and components:  Select 100 most important items and invest in them

 

- Develop services

1) Announce plans to develop services in the mid- to long-term in June 2020

2) Create models of forest tourism

 

- Promote ventures

1) Reform the existing venture support to be more effective

2) Help startups grow into unicorns:  Work for the number of unicorns to increase to 20, up from 11 at present

 

3. Restructure the economy

- Seek deregulation

1) Carry out a zero-based review of whether the regulation should exist:  Select five industries, such as bio-health and finance, and then identify 10 business areas among them suffering most from regulatory obstacles and conduct a zero-based review of regulations on each business area

2) Improve regulatory sandboxes so that more than 200 cases of new businesses can be made possible

3) Build a model to resolve conflicts of interest when new services are introduced to markets

 

- Increase productivity

1) Announce plans to improve productivity in the mid- to long-term in the first half

2) Work to maintain the current level of labor force, such as by promoting senior and female employment, and attracting foreign labor force

 

- Improve human resources management

1) Grow as many as 200,000 high tech human resources by 2023

2) Extend safety nets to platform workers

 

- Work on the labor market and public spending

1) Work to increase job security and promote decent wages

2) Increase fiscal spending efficiency

 

4. Pursue inclusive growth

- Increase job creation support

1) Provide different employment support to different age groups, and draw up job creation measures for those in their 40s by the first quarter

2) Increase social service jobs by 95,000 this year

 

- Expand social safety nets

1) Provide increased national pension benefits to the elderly earning bottom 40 percent

2) Provide more support to the first quintile group

3) Reform the contribution systems of the four basic social security programs

 

- Support the working class

1) Expand the loan programs for low income households and young adults[1], and work to enact a financial consumer protection law

2) Provide 2.7 trillion won worth of low interest rate loans to small businesses, as well as promote local markets to help small merchants

3) Launch 100 billion won worth of funds to help small businesses adopt high technologies

 

- Work towards fairness

1) Work to remove unfair business practices between buyers and suppliers

2) Work to improve consumer protection, such as refund guarantees for online subscriptions and integrated information systems on daycare

 

5. Prepare for the future

- Prepare for demographic changes

1) Raise birthrates:  Work on a support package covering houses, childbirth and daycare

2) Announce measures to deal with rising single-person households in the second quarter, and work to support the elderly, who have been increasing, and to help develop senior markets

 

- Improve the quality of life

1) Announce mid- to long-term plans to improve the quality of citizen life in the first half

2) Improve citizen safety:  Continue to work on improving road safety, preventing industrial accidents and lowering suicide rates, and strengthen fine dust management

 

- Address climate change and ROK-North economic cooperation

1) Work to achieve the greenhouse gas emission reduction target of 2.5 percent from 2017

2) Work on an inter-Korean economic cooperation project