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Economic Policies, H2 2020

  • DivisionEconomic Policy Bureau - Economic Policy Division
  • DateJune 1, 2020

Economic Policies, H2 2020

 

 

Background

 

Although the Korean economy took off confidently in January backed by improving real economic indicators, such as investment and consumption, it had to confront the rapidly spreading COVID-19 from the end of January.  The global economy, as well as the Korean economy, has been pushed into an unknown road as the disease developed into a pandemic, exports suffering from lockdowns, real economy and employment dropping and financial market volatility increasing. 

 

The economy has seen consumption and service output fall to the lowest since the 1998 Asian Financial Crisis amid social distancing, exports plummet due to lockdowns in major trade partners, and unemployment soar.  To help the economy ride out the situation, the government has spent a total of 250 trillion won, around 13.1 percent of GDP, including two rounds of extra budget spending, on disease control and emergency reliefs, ranging from job retention support and household relief to business and financial market funds.

 

The economy will overcome the pandemic helped by government’s rapid response and efforts to prevent the spread of the disease and Korea’s COVID-19 response tools and strategy have been widely recognized in the global community.

 

In the second half of 2020, domestic demand is expected to gradually improve.  However, it may be hampered if confirmed cases increase.  It would be hard for exports to pick up in a short time given a fall in global trade and conflicts between the US and China, the two largest trade partners of the economy.  Against the backdrop, the government has drawn up the economic policies for the second half with the two focuses in mind:  Overcome the COVID-19 pandemic crisis and prepare for a post-COVID-19 economy.

 

2020 Outlook

 

- Growth:  Annual growth of 0.1 is expected.  Domestic demand and exports are projected to slow down due to low confidence and weak global market.  The economy is expected to prop up by expansionary fiscal policies, including supplementary budget spending. 

  • - Employment:  The economy is expected to maintain jobs at the same level as last year, the employment rate falling somewhat to 66.4 percent.

- Inflation:  The annual consumer price inflation is projected to be 0.4 percent due to low oil prices and weak demand.

- Current account balance:  Current account surpluses are expected to decline to US $58.0 billion amid slowing exports. 

 

 

2019

2020

2021

  GDP growth (%)

2.0

0.1

3.6

  Employment growth (thousand)

  Employment rate (%, aged 15-64)

301

66.8

0

66.4

250

66.8

  Consumer price inflation (%)

0.4

0.4

1.2

  Current account (US $billion)

  Exports (y-o-y, %)

  Imports (y-o-y, %)

60

-10.4

-6.0

58

-8.0

-8.7

56

8.5

9.2

 

3+3 Framework for Economic Policies, H2 2020

 

The government has set the six goals to be pursued in the second half:  Three to overcome the COVID-19 crisis and the other three to prepare for a post-COVID-19 economy.  The framework is as follows.

 

 

1. Help the economy ride out the crisis

 

  • - Maintain expansionary fiscal policies

- Support small merchants

- Protect marginal companies, as well as cash-strapped companies

- Work on job retention and employment security

 

2. Stimulate recovery

 

- Boost consumption and tourism

- Promote investment

- Support exports

- Revive local economies

 

3. Strengthen risk management

 

- Work for more successful infection prevention and control

- Cooperate with the global community to prevent the spread of diseases

- Work to avoid trade risks and other economic risks

 

4. Work for the development of future growth engines

 

- Korean New Deal

- Develop future growth engines:  Disease prevention, bio-industries, a-system-on-a-chip and future cars

- Promote reshoring, and work to secure manufacturing supplies

 

5. Pursue restructuring

 

- Promote investment in ventures and startups

- Further develop major industries and grow services

- Work to deal with changes in the future

 

6. Strengthen social safety nets

 

- Seek unemployment benefits for all workers

- Help job seekers be prepared for demand in the market

- Work on programs for those outside the social security system

- Pursue fairness and cooperation among those doing business

 

Second Half Economic Policies

 

 

1. Help the economy ride out the crisis

 

1) Maintain expansionary fiscal policies

 

- 3rd supplementary budget to be added to a total of 250 trillion won fiscal packages announced so far

- 75 percent of the 3rd supplementary budget, of which the bill to be submitted early June, to be spent over the three months from its passage by the National Assembly

- Closely monitor international financial markets, and work to avoid volatility if necessary

 

2) Support small businesses and self-employed

 

- Provide liquidity for cash-strapped small businesses:  Increase small business loans to 1 trillion won and guarantees by 6.9 trillion won, including 200 billion won to encourage small businesses to go online

- Share utilities fees

- Develop government property into business spaces for small businesses to rent, and temporarily excuse small merchants from late fees for using government properties or public facilities

 

3) Protect marginal companies, as well as help cash-strapped companies

 

- Work on fast delivery of the key industry support fund worth 40 trillion won and the buying of corporate bonds and CPs through the SPV worth 20 trillion won

- Give a 30 percent rent reduction to businesses locating in free economic zones, free trade zones and foreign investment zones

- A total of 103.4 trillion won worth of SME products and services to be purchased through government procurement system

- Work on a fast delivery of 1 trillion won worth of funds out of the 2.6 trillion won corporate restructuring funds, the amount raised this year

 

4) Work on job retention and employment security

 

- Help with job retention:  SMEs not subject to tax audit if they agree on local governments’ job retention plan, and wage support to be provided for those companies

- Extend the special support for shipbuilders to December, scheduled to end in June, and add other industries, such as the film industry, to the special support

- Give emergency reliefs to those outside the employment insurance system, such as contract workers, freelancers and self-employed:  monthly payment of 500,000 won for three months

- Continue to create jobs in the public sector to absorb shocks in the job market

 

2. Stimulate the economy

 

1) Boost consumption and tourism

 

- Issue discount coupons worth 168.4 billion won to stimulate 0.9 trillion won worth of extra consumption

- A total of 9 trillion won worth of online and offline gift certificates to be issued by local governments, up 3 trillion won compared with the original plan

- Temporarily lower auto sales tax by 30 percent

- Expand the 10 percent refund for purchases of energy-efficient home appliances by three folds to 450 billion won

- Work to increase income tax deduction for credit or debit card use

- Review a VAT refund program for the Korea Sale Festa, scheduled to be held on November 1-15

- Hold tourist discount for transportation from trains and buses to ship and rent cars to encourage tourism from June 20 to July 19

- Develop tourism infrastructure, such as ports and marine sports facilities, to help with creating various tourist packages, for example, an island hopping tour package

 

2) Promote investment

 

- Improve the tax deduction for corporate investment to expand benefits for companies

- Make tax deductions for facilities investment simple and easy by integrating it with other investment tax deduction programs  

- Promote corporate investment in logistics centers and manufacturing facilities, worth 6.2 trillion won

- Develop 10 trillion won worth of public projects for private investment, including a 1.5 trillion won wastewater treatment facilities, and work on the fast spending of the 2020 - budget of 5.2 trillion won, such as on land acquisition

- Spend 5 trillion won to promote facilities investment in the second half

- Invest in public construction projects, such as in tunnel and railroad repair, and community SOC projects

 

3) Support exports

 

- Promote online exporting:  Exporters to use B2B platforms provided by KOTRA and Korea International Trade Association, and make their own advertisements with VR or AR technologies with the help of content creation services

- Provide support for remote marketing, such as teleconsulting and online exhibition

- Provide export financing worth 118 trillion won in the second half, including loan extensions and interest payment suspension by Exim Bank of Korea

- Draw up plans to promote service exports focusing on content industries and post COVID-19 new growth engines

- Work on bilateral and multilateral cooperation to ease travel restrictions for businesspeople during the lockdown

 

4) Revive local economies

 

- Promote private investment in public projects:  Select projects most appropriate for private investment and modify them to be favorable to private investment

- Promote investment in infrastructure construction, including port construction

- Develop national properties and carry out urban renewal

 

3. Strengthen risk management

 

1) Work for more successful infection prevention and control

 

- Strengthen disease prevention Set up 67 local centers for infectious disease control, and build a smart disease prevention and control system

- Work on an effective emergency response system, such as being able to use resources from the private sector to fight diseases

- Cooperate with G20 and ASEAN to prevent the spread of diseases, as well as in macroeconomic policies and financial cooperation

- Expand COVID-19 response aid for developing countries, using EDCF

 

2) Work to avoid trade risks and other economic risks

 

- Inform major credit rating agencies, chambers of commerce in Korea and international investors about Korea’s economic situation

- Share with international bodies the country’s COVID-19 response strategies, including economic and healthcare policies

- Come up with measures to improve financial institutions’ FX soundness

- Invest 5.03 trillion won in state-owned financial institutions to enhance their financing capabilities

- Work on current trade issues:  US-China conflicts, Brexit and US countervailing duties

 

4. Work for the development of future growth engines

 

1) Korean New Deal:  The Korean New Deal pursues job creation, its major axes being a Digital New Deal and a Green New Deal.  The government will invest around 76 trillion won over the next five years, 31.3 trillion won by 2022 to create 550,000 jobs and around 45 trillion won for 2023-2025.

 

Digital New Deal

 

The government will invest 6.4 trillion won by 2022 in data, networks and AI, 222,000 jobs expected to be created.

 

- Build 15 big data platforms including a healthcare big data, open 140,000 public sector data, and set up 700 databases for machine learning

- 5G network for public administration:  Build 5G government networks, and use cloud computing for 15 percent of the public administration information system

- 5G-AI industrial convergence:  Work on the seven 5G-AI industrial convergence, such as for manufacturing and quality control, and raise 1 trillion worth of AI venture funds

- Human resources:  Grow as many as 100,000 talents in AI and SW

 

The government will invest 0.8 trillion won by 2022 in digital security and inclusiveness, 15,000 jobs expected to be created.

 

- Inclusiveness:  Set up high speed internet in 1,300 remote villages and WiFi in 41,000 public places

- Digital security:  Provide 25,000 SMEs with free security testing and consulting services, and carry out security check for railroad and airline aviation

 

The government will invest 1.4 trillion won by 2022 in developing remote learning and working, 28,000 jobs expected to be created.

 

- Schools:  Set up WiFi in classrooms and replace 200,000 old lab-top computers

- Online education:  Replace old servers and network devices in state universities

- Provide remote care to 120,000 elderly

- Remote working:  Provide 160,000 SMEs with vouchers for accessing remote work systems

 

The government will invest 4.8 trillion won by 2022 in digital SOC, 65,000 jobs expected to be created.

 

- Make key infrastructure smart, such as smart roads, water management and disease warning systems 

- Make cities, industrial complexes and logistics centers smart:  Build an integrated information system to manage cities, and encourage SMEs to jointly build smart logistics centers

 

Green New Deal

 

The government will invest 5.8 trillion won by 2022 in eco-friendly and smart infrastructure, 89,000 jobs expected to be created.

 

- Make public service facilities and public schools eco-friendly

- Work on transforming cities into clean and smart ones:  Develop ICT systems for water and air management, and create city forests

- Work on smart water supply management

 

The government will invest 1.7 trillion won by 2022 in eco-friendly manufacturing, 11,000 jobs expected to be created.

 

- Promote the development of eco-friendly technologies:  Provide across the board support from R&D to commercialization for 100 technologies selected, and build an industrial cluster for green technology

- Promote low-carbon manufacturing:  Build an energy efficiency testing platform in smart industrial complexes, as well as promoting clean and eco-friendly factories

 

The government will invest 5.4 trillion won by 2022 to promote low-carbon energy, 33,000 jobs expected to be created.

 

- Build smart-grids

- Promote new renewable energy production:  Promote commercializing new energy technologies, such as solar, wind and hydrogen energies, and give households support for installing solar panels

- Support replacing old vehicles with eco-friendly vehicles

 

Improve job security

 

The government will invest 5 trillion won by 2022 to improve job security, 92,000 jobs expected to be created.

 

- Expand the employment insurance and industrial accident compensation insurance (0.9 trillion won)

- Introduce support to cover those outside the current security system (2.7 trillion won):  Introduce a national unemployment support on January 2021, which covers employment services to unemployment benefits, support small merchants whose businesses fail and provide reliefs to workers hit by the COVID-19 pandemic

- Provide job training (0.5 trillion won) for workers to learn skills needed in high tech areas

- Improve work place safety (0.4 trillion won)

- Provide internship opportunities for young adults, retraining packages for the middle-aged, and startup programs for those wanting to open businesses (0.5 trillion won, 92,000 jobs expected to be created)

 

Infrastructure for Korean New Deal

 

The government will develop data, 5G and AI to successfully carry out the Korean New Deal.

 

- Data:  Work on personal data protection and safe data transaction

- 5G:  Work on deregulation to promote private investment in 5G, such as communications, devices, smart factories

- AI:  Work on a legal basis and AI industrial cluster

 

The government will promote ‘smart working and doing business remotely’

 

- ‘Smart working and doing business remotely’:  Draw up measures to promote ‘smart working and doing business remotely’

- Support smart working:  Provide consulting services for companies to introduce working remotely, and help ventures and startups with developing technologies related to smart working

- Public sector to adopt solutions and products related to ‘smart working and doing business remotely’

 

2) Develop future growth engines:  Disease prevention, bio-industries, a-system-on-a-chip and future cars

 

- Disease prevention:  Work on exporting the country’s disease prevention tools and products, seek the country’s infectious disease prevention model, 3Ts (Test, Trace and Treat), to become a global standard

- Bio-industries:  Work on measures to develop bio-industries, such as green biotechnology, marine biotechnology and regenerative medicine, and develop human resources

- Test-run driverless car ride services and promote drone delivery services

- Set up a center for a system-on-a-chip, where information will be shared with regard to designs of the chips

 

3) Promote reshoring and work to secure manufacturing supplies

 

- Introduce a reshoring support package which includes expanded tax reduction and reshoring support

- Promote the returning of R&D centers:  Provide research expenses and income tax reduction for foreign researchers, and raise support for companies with FDI

- Announce in July measures to promote the reshoring of high tech companies and improve positions with regard to the GVC

 

5. Pursue restructuring

 

1) Promote investment in ventures and startups

 

- Improve regulations on venture holding companies and consider the investment in corporate venture capital by holding companies

- Support unicorns:  Launch a 1.3 trillion won worth of funds to help with scaling up

 

2) Further develop major industries and (grow) services

 

- Promote smart manufacturing:  Promote smart factories and support R&D, introduce smart manufacturing systems to industrial complexes

- Work on smart infrastructure:  Develop a smart port management system, smart agriculture and smart urban management system

- Support airlines through guarantees and promote R&Ds of aircraft parts

- Work to improve service regulations to introduce new services, such as by carrying out the One Step Model, a way to resolve conflicts between interest parties

 

3) Work to deal with changes in the future

 

- Improve regulations to prepare for a post COVID-19 economy:  Work on deregulation on biohealth industries, change regulations to promote ‘smart working and doing business remotely’ and high-tech supplies manufacturing, and streamline the process to get social security benefits

- Continue to work on deregulation to develop the 10 areas of data and AI, future cars, medical technologies, healthcare, fintech, tech startups, industrial complexes, recycling, tourism and e-commerce

- Promote regulatory sandboxes and work on regulation-free zones

- Continue to work on public sector restructuring:  Improve spending efficiency, strictly manage fiscal soundness in the mid-term, Deliver government programs and welfare benefits on time, promote innovative products by the public sector purchasing them, and work on fair contracting practices

- Improve labor market:  Support the soft-landing of the 52 hours work week with a flexible working hours system

- Improve productivity:  Draw up a mid- to long-term plan to develop science and technology, support strengthening R&D capabilities, and promote reeducation

- Prepare for demographic changes:  Work on the safety of single-person households and female-headed households, expand support for single-person households, including housing support and mental healthcare, and help create markets for single-person households

- Prepare for low birth and ageing population:  Announce frameworks to deal with low birth and ageing population in December, increase housing supplies for the newly married and households with more than two children, promote elderly employment and help develop markets for seniors

- Renew efforts to reduce greenhouse gas emissions, categorize green financing and offer guidelines for environmentally responsible investing

 

6. Strengthen social safety nets

 

1) Seek unemployment benefits for all workers

 

- Gradually expand the employment insurance to all workers

- Introduce a national employment service

 

2) Help job seekers be prepared for demand in the market

 

- Launch a package program for those in their 40s, in which job training can lead to employment opportunities

- Provide startup support for those in their 40s

- Help fix job market mismatches by providing supports designed for each age groups

- Increase jobs for the physically challenged by 2,000 to 24,396

 

3) Work on programs for those outside the social security system

 

- Expand the industrial accident compensation insurance to special contract workers outside the social security insurance system

- Ease requirements for household emergency reliefs

- Expand loans for veterans and their families

- Expand loans for artists and athletes

- Work to strengthen daycare services, increase housing supplies and expand the national healthcare coverage

 

4) Pursue fairness and cooperation among those doing business

 

- Continue to work on related laws

- Correct unfair practices between online marketplaces and suppliers

- Promote cooperation between companies by providing incentives, such as tax audit exemptions

- Require social enterprises to be more responsible and transparent

 

Please refer to the attached pdf

 

Ministry of Economy and Finance
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