Recently, major domestic and foreign institutions have adjusted Korea's economic growth forecast for this year to the low range of 0-1%. Attention is focused on the first economic diagnosis and forecast released by the Ministry of Economy and Finance since the launch of the Lee Jae-myung government. Amid simultaneous deepening of domestic stagnation and export sluggishness, the government has indicated plans for a supplementary budget and other fiscal stimulus measures. The key question is how much impact the new government policies will have on the growth rate. The Green Book (Recent Economic Trends), due out in mid-month, and the new government's economic policy directions expected to be announced later are likely to include this information.
◇ Attention on the first Green Book after the launch of the new government... Will the economic diagnosis change?
The first economic diagnosis after the launch of the new government was made by the state-run research institute KDI. In its 'June Economic Trends' report released on the 10th, KDI stated that "our economy is showing a weak state overall, with a sluggish construction industry and exports slowing down due to increased U.S. tariffs," diagnosing that the 'economic stagnation continues.' Last month, KDI officially mentioned economic slowdown for the first time in about two years and lowered the growth forecast for this year to 0.8%. Although this economic trend was not mentioned, KDI still maintains its existing position that 'care should be taken with the supplementary budget.'
The Ministry of Economy and Finance will present its first official economic diagnosis since the launch of the Lee Jae-myung government through the 'Recent Economic Trends - June Edition' to be released on the 13th. The terminology used in the Green Book and the evaluation of the economic phase are emerging as key issues because there is a possibility that different evaluations from the previous government under Yoon Suk-yeol will follow.
There have been several instances where the tone of the Green Book changed during government transitions. In April 2017, near the end of the Park Geun-hye administration, the Green Book contained optimistic expressions such as 'consumption rebound' and 'improvement in economic sentiment,' but in the June edition right after the launch of the Moon Jae-in government, it changed to a cautious expression stating that 'the recovery of domestic demand, including consumption, is not solid.'
A similar situation was repeated when the Moon Jae-in government was replaced by the Yoon Suk-yeol administration. The April 2022 Green Book diagnosed the Korean economy as 'exports and employment improvements continue,' but in the early June edition of the Yoon administration, it used the expression that 'economic slowdown is a concern due to sustained high inflation, weak investment, and weakened export recovery.' Although the export growth rate in May was 21.3%, higher than March's 18.2%, it reflects an opposite evaluation.
Against this backdrop, interest continues in what content will be included in the initial Green Book of the current government. Previously, the Ministry of Economy and Finance used the term 'economic recovery' for 13 consecutive months until November of last year. However, after former President Yoon Suk-yeol announced a state of emergency in December of last year, the expression 'increased risks of economic downturn' appeared, and in the January to May editions, the wording was adjusted to 'increased downward pressure on the economy.' However, there have been criticisms that the government's economic diagnosis is overly conservative in a situation where the first-quarter gross domestic product (GDP) recorded negative growth.
The new government is also likely to clarify its policy direction through the composition of the Green Book's table of contents and the arrangement of indicators. In fact, during the Lee Myung-bak administration in 2011, the existing sixth item 'employment' and the eleventh item 'inflation' were moved forward, implying a change in policy priorities.
◇ Economic policy direction for the second half reflecting the new government's philosophy... Likely to include policies on growth, expanded fiscal measures, and price stabilization
The document that most concretely shows the government's economic policy philosophy is the 'economic policy direction.' The economic policy direction provides a diagnosis of the current state of our economy and includes the main economic policies the government will pursue in the future. The Ministry of Economy and Finance plans to officially start drafting the new government's economic policy direction after the appointment of the Deputy Prime Minister for Economy, and it will also present a revised economic growth forecast at the time of the announcement.
President Lee Jae-myung previously pledged a potential growth rate of 3% and has made growth the top priority among economic policies. For this reason, predictions have emerged that growth-related policies are likely to be reflected in the economic policy direction. In his inaugural address, President Lee mentioned the word 'growth' 22 times and emphasized, "I will use the national budget as a lever to revive the virtuous cycle of the economy." This stance was also reflected in personnel appointments at the presidential office, which changed the title of 'economic chief' to 'chief for economic growth' and appointed a chief for economic growth just two days after his inauguration. An official at the presidential office noted, "The economic downturn is deeper and more serious than expected," and added, "The government plans to concentrate its policy efforts on economic recovery."
The economic policy direction is also likely to include direct support measures for vulnerable groups and small businesses, as well as price stabilization measures. On the day of his inauguration, the 4th, President Lee instructed the formation of the 'Crisis Economic Inspection Task Force' (TF) as his first administrative order and emphasized the need for a supplementary budget by presiding over the first meeting. Five days later, he held the second TF meeting to discuss the direction of the supplementary budget and instructed, "Prepare the supplementary budget swiftly to promote economic recovery and stimulate consumption."
He also stated, "I am seriously acknowledging the reality that the burden on the public has increased due to the sharp rise in the prices of necessities, such as the price of a pack of ramen exceeding 2,000 won," and added, "I plan to closely monitor price trends and be prepared to implement immediate response measures if necessary."
Meanwhile, the announcement of the economic policy direction for the second half, which is typically made between late June and early July, is likely to be somewhat delayed this year. This is because the initial policy direction from the new economic team is expected to reflect the government's philosophy and policy priorities. Similarly, the Moon Jae-in government revealed its first economic policy direction only on July 25, 2017.
Some expectations have arisen that the economic policy direction for the second half may not be announced at all. While the economic policy direction can only be initiated after the appointment of the Minister of Economy and Finance, the Lee Jae-myung government is conducting a 'real talent search project' where it is receiving 'public recommendations' for ministers and heads of public institutions, which might further delay the appointment of the Deputy Prime Minister for Economy.
An official from the Ministry of Economy and Finance stated, "First, the Deputy Prime Minister for Economy needs to be appointed, so the timing and content of the announcement regarding the economic policy direction can be determined," adding that "there is a possibility that the economic direction will not be announced in the second half of this year." However, since the Ministry of Economy and Finance has never failed to announce an economic policy direction since its inception in 2008, the likelihood of not announcing it this time is considered low.