2022 Economic Policies

 

 

Outcomes of the 2021 policies

 

The economy has seen its growth pick up the pre-pandemic pace in 2021, posting the fastest recovery among the G20 advanced countries, backed by brisk exports, which hit the biggest in history, and steadily rebounding job markets.  With policies to address income inequality, there has been improvement in household income quintiles and employment safety.  The economy has also taken a step toward a future with policies adopted to promote BIG3[1] and DNA[2], as well as to support ventures.  The economy has seen steady improvement with regard to long-term challenges, such as carbon neutrality and local depopulation, the number of hydrogen fuel-cell vehicles rising to the biggest in the world and future carbon reductions assessed to be second from the top among Asian countries

 

Background of the 2022 policies

 

The economy is expected to continue to recover amid improving consumption, expanded investment in new technologies and construction, and brisk exports.  Housing construction and SOC investment will likely turn the building industry out of a retreat.  Employment is expected to improve backed by the reopening of close-contact services and policies to boost job creation.  Inflation pressures may last for a while amid rising demand, but conditions for fresh food and oil supply are projected to improve. 

 

However, we have to deal with major risks to the global economy, such as the Omicron variant, supply chain disruptions and monetary policy normalization in major economies, as well as domestic issues, such as household and corporate debt run up during the pandemic.  In the long-run, the economy has to overcome risks from population decline, and deal with industrial restructuring required to keep up with ‘going digital and green’, which will also raise job market issues.

 

Against this backdrop the government has made the country’s economic outlook for 2022 and drawn up the 2022 economic policies.

 

2022 Outlook

 

• Growth:  Annual growth of 3.1 percent is expected.  Consumption is expected to increase amid the reopening of close-contact services, uncertainties hanging over new infections.  Brisk exports will likely continue.
• Employment:  A total of 280,000 jobs are expected to be added, service jobs continuing to grow and policies being adopted to boost consumption and employment.
• Inflation:  The annual consumer price inflation is projected to be 2.2 percent, declining from 2.4 percent of the previous year.  Demand side pressures are expected, though.
• Current account balance:  Current account surpluses are expected to be US $80.0 billion as exports and imports both rise.  Exports are projected to hit a new record high following the previous year.

 

 

	2021	2022
GDP growth (%)	4.0	3.1
Employment growth (thousand) Employment rate (%, aged 15-64)	350 66.5	280 66.9
Consumer price inflation (%)	2.4*	2.2
Current account (US $billion) Exports Imports	91.0 643.0 612.5	80.0 656.0 628.0

* A chained index (2015=100), the new chained CPI (2020=100) to be used for December and the full year 2021

 

Framework for the 2022 Policies

 

The 2022 policies were drawn up with two focuses:  Help with full-fledged recovery, and promote future growth engines and work on a better future.  Key policies are as follows.

 

Help achieve full-fledged recovery

 

1) Seek complete recovery

 

• Find a best policy mix
• Help pandemic-hit businesses rebound through consumption-boosting measures
• Promote investment
• Support exports

 

2) Boost the real economy

 

• Support small businesses’ retrial after they have failed
• Work to keep basic necessities prices stable
• Help with job market recovery and reinforce employee safety nets
• Work to ease inequality caused by the pandemic

 

3) Strengthen risk management

 

• Properly respond to global supply chain disruptions
• Work on a soft landing of household debt and marginal firms
• Work on a stable housing market
• Properly respond to financial and FX market volatility, and other external uncertainties

 

Work on a better future

 

1) Promote new growth engines

 

• Work for the Korean New Deal projects to produce outcomes
• Help develop BIG3 and other new industries
• Further develop major manufacturing and promote services
• Promote ventures and support quality workforce development

 

2) Prepare for future challenges

 

• Take steps toward carbon neutrality
• Work on population decline and local depopulation
• Pursue fair practices, win-win and understanding among different interest groups
• Work on the reform of the labor market, fiscal spending and public sector

 

2022 Economic Policies

 

I. Help achieve full-fledged recovery

 

1. Seek complete recovery

 

The government will work for the economy to successfully weather the pandemic and return to a normal growth trajectory by employing a best policy mix and carrying out sector-specific measures to promote consumption, investment and exports.

 

1) Find a best policy mix

 

• Spend 63 percent of the 2022 budget in the first half
• Adjust the expansionary monetary policy taking into account growth, inflation, financial imbalance and major economies’ policies
• Work on a soft landing of the financial sector, such as by extending corporate bond purchases and loan maturity, and temporarily easing liquidity requirements
• Strengthen disease control to help get ‘back to normal’

 

2) Help pandemic-hit businesses rebound through consumption-boosting measures

 

• Employ stronger tax support and other fiscal incentives to promote consumption, particularly spending on pandemic-hit services, such as tax breaks for extra spending and local government gift certificates with increased cashback rewards
• Extend consumption boosting measures which have been producing successful outcomes, such as discount coupons, car sales tax cuts, large sales events and government gift certificates
• Launch a travel week in the first half of 2022 and provide tourist discounts on the costs transportation, accommodation and recreational facilities
• Extend the foreign tourism designed to counter the pandemic, such as no-destination flights, duty free shopping without limits[3] and instant VAT return of up to 2.5 million won for foreign visitors

 

3) Raise incentives for corporate investment

 

• Increase tax and other financial incentives for corporate investment in strategic technologies and carbon neutral technologies
• Work to provide a legal basis for supporting national strategic technologies and new industry development, such as introducing the Special Act on National Strategic High-tech Industries and revising the laws on industrial location
• Work to expand investment in large-scale projects to around 115 trillion won, which include those by corporations and the public sector, as well as private investment in public projects
• Promote construction investment

 

4) Support exports

 

• Provide logistics support and increase export financing
• Support startup exporters and help with the exporting of farm products
• Work to expand markets through a CPTPP membership, and streamline the country-of-origin certificate process for RCEP[4]

 

2. Help the real economy fast rebound

 

The economy getting on a normal growth track, the government will reinforce its small business support, work to keep prices stable, increase employment support and seek to close gaps the pandemic has left.

 

1) Reinforce small business support

 

• Spend 2.2 trillion won on business loss compensation, as well as provide low interest rate loans and extend current tax support
• Draw up leisure industry-specific support, taking into consideration the pandemic situation
• Strengthen business retrial support to provide more detailed, stage-specific help from business closure to starting again to scaling up

 

2) Keep essential goods prices in check

 

• Promote the current prices meeting to a ministerial one and make each ministry work to keep stable the prices of items in their charge
• Draw up item-specific plans to respond to price volatility and supply shortages
• Work on long-term measures, such as those to improve distribution, promote competition and keep utilities prices low

 

3) Help job markets return to normal and work to improve job security

 

• Provide job training support and increase return-to-work benefits, as well as strengthen recruitment services and create jobs in the public sector
• Provide tax support and other fiscal aid for creating jobs, such as increased incentives for hiring new workers and expanded job training support for women
• Continue with strengthening job security, such as expanding employee insurance to platform workers and other contract workers outside the program
• Work on the revision of employment statistics to properly reflect various types of employment
• Help with the successful implementation of 52 hour workweek, such as through consultation services to find a best solution

 

4) Close gaps the pandemic has left

 

• Work to close gaps in education, cultural activities and the use of digital tools, which have been widened due to the pandemic
• Reinforce the comprehensive young adult support, ‘Hope Ladder’, which covers from housing to job training to employment services to student loans
• Strengthen the social safety net, particularly for the disabled, single parent households and those in need of emergency home care services, and expand the national healthcare coverage
• Introduce three packages to protect citizens from voice phishing, loan sharks and pyramid schemes

 

3. Strengthen risk management

 

The government will be thoroughly prepared for the risks that may hamper the economy from getting on a normal growth path.

 

1) Draw up measures to properly respond to supply chain risks

 

• Launch a taskforce to secure the supply of strategically important materials
• Build an early warning system to closely monitor supply situations for 4,000 items sensitive to risks
• Decide on up to 200 most important items in terms of economic and national security, for the stable supply of which plans will be drawn up, such as to increase reserves, diversify imports, promote home manufacturing and jointly build an emergency sharing system with other nations

 

2) Work to keep household debt and marginal firms under control

 

• Control total household debt growth below around five percent
• Work to improve household debt quality, such as by increasing installment debt
• Work to ease interest burdens on working households through more than 10 trillion won worth of policy funds and lower interest rate loans
• Support corporate restructuring through credit risk assessment programs, corporate restructuring funds and corporate workout aid

 

3) Pursue housing market stability

 

• Speed up the supply of affordable housing
• Work on stable rental rates

 

4) Be prepared for external risks

 

• Work to maintain Korea’s financial and FX market stability, as well as its credit worthiness, amid rising concerns over coronavirus variants, global inflation pressures and monetary policy shifts in major economies
• Streamline the FX transaction system and seek inclusion into MSCI’s development markets index
• Promptly carry out measures to stabilize Korea treasury markets when necessary, such as adjusting issuance volumes and buybacks
• Be prepared for economic and national security issues, including those regarding global supply chains and tech development

 

II. Work on a better future

 

1. Develop future growth engines

 

The government will work on the tangible outcomes of Korean New Deal projects, as well as to promote new growth engines, further develop key manufacturing and services, support ventures and increase qualified workforce.

 

1) Actively carry out Korean New Deal 2.0 projects

 

• Make fiscal investment worth 33.1 trillion won in digital, green and human New Deal projects, which range from super connectivity to carbon neutrality to young adult support
• Work on tangible outcomes and launch new mutual funds to share profits from New Deal 2.0 projects with citizens
• Give ventures opportunities to participate in beta testing for over 100 New Deal products

 

2) Promote BIG3, DNA and post-pandemic industries

 

• Help Korea’s BIG3 expand markets amid global supply chain restructuring
• Improve the future car subsidy system and support parts manufacturing, draw up a roadmap for building a car semiconductor supply chain at home, and develop future healthcare technologies, such as digital therapeutics
• Promote the development of DNA-based services
• Promote new digital technologies as future growth engines, such as cloud computing, blockchain and metaverse
• Provide a total of 65.9 trillion won to support BIG3 and DNA

 

3) Further develop major manufacturing and promote new services

 

• Support smart and green manufacturing
• Help address the job/worker mismatch in shipyards
• Continue to support parts and materials manufacturing
• Promote the development of new services, including ‘untact’ services and cruise tours
• Support cultural content industries by directly financing production, raising investment funds and developing content evaluation tools

 

4) Promote ventures

 

• Adopt venture friendly regulations, such as multiple voting shares and stock options
• Promote tech startups, provide K-testbeds and open a bio-startup platform
• Develop human resources for 20 new technologies and promote corporate-led workforce development
• Expand regulatory sandboxes to mobility and biohealth businesses, and further develop the ‘one step forward’ model[5]
• Work on a Special Act on National Strategic Technologies to protect and develop technologies of national importance, such as those for chips, batteries, quantum applications, space exploration and AI

 

2. Prepare for future challenges

 

The government will work on a smooth transition to a low carbon economy, promoting restructuring of businesses and work force, as well as will work to properly respond to population decline and struggling local economies, and to build social capital and carry out public sector reform.

 

1) Work on carbon neutrality

 

• Make the Framework Act on Carbon Neutrality ready for March enforcement, and adopt a system to assess the effect of climate change in September 2022
• Invest 11.4 trillion won over 2022 in carbon neutrality and raise climate response funds worth 2.4 trillion won to support carbon reduction
• Finalize the framework plan for carbon neutrality and green growth
• Strengthen the incentive system to accurately assess carbon reduction efforts and provide rewards accordingly, such as through carbon emissions quotas, loans and guarantees, and R&D support
• Draw up ESG guidelines and launch 1.0 trillion won worth of green funds to support SMEs pursuing carbon neutrality
• Work on transition to a hydrogen economy and support renewable energy power generation
• Bring the marine waste management under a carbon reduction category and build a blue carbon database

 

2) Respond to population decline and local depopulation

 

• Work to respond to labor force shortages
• Offer a comprehensive package to raise birthrates and help strike a balance between work and family
• Launch region-specific programs to prepare those towns for local depopulation
• Work on the building of metropolitan areas to help nearby towns in shrinkage function properly

 

3) Promote fair practices, win-win and cooperation

 

• Work on the proper management of online platform businesses, such as in terms of consumer protection and network traffic
• Help build social capital among different interest groups

 

4) Carry out public sector reform, as well as fiscal spending reform

 

• Pursue fiscal sustainability through spending restructuring, project-based budgets and citizen participation in budgeting
• Work to reform education spending:  Introduce project-based budgets and review local government grants
• More properly assess public institutions in order to promote ethical management, prevent reckless management and improve financial soundness