World Economy

South Korea Officials Warn of Deepening Financial Uncertainty

It’s been nearly two decades since South Korea faced its worst economic crisis
Officials acknowledge that the job market could worsen as corporate restructuring and exports slowdown threaten the manufacturing sector.Officials acknowledge that the job market could worsen as corporate restructuring and exports slowdown threaten the manufacturing sector.

South Korea’s top economic policymakers issued warning messages Tuesday about financial uncertainties this year, stressing the need for thorough risk management.

“When it comes to internal and external conditions, it’s difficult to see even an inch forward,” Bank of Korea Gov. Lee Ju-yeol said during a New Year’s meeting in Seoul with government officials and leaders in the financial industry, Yonhap reported.

He used the term of an “era of ultra-uncertainty” and vowed every effort for financial stability.

“Chances are high that swings in the financial and foreign exchange markets will frequently expand this year,” the central bank chief said. “The BoK will support a recovery of economic growth by maintaining the accommodative direction of monetary policy, as there is a possibility that low growth will continue for a considerable time.”

Yim Jong-yong, chairman of the Financial Services Commission, also pointed out that South Korea’s financial sector is exposed to multiple risks, like a “crevasse,” that are hard to predict. (A crevasse is a crack in the surface of a glacier).

He emphasized the role of finance. “Finance should ease burdens in the real economy field by playing its proper role as the blood vessel of an economy,” he said. “It’s important to win trust from the market and the people so that finance won’t add to economic uncertainty.”

The financial regulator called for a co-prosperity of the nation’s entire financial circles, not the isolated development of a firm or a specific industry.

Finance Minister Yoo Il-ho agreed, saying, “One thing for certain is uncertainty.” He asked local financial companies to stand ready to deal with any emergency situations and also redouble efforts for the spread of a performance-linked pay system.

He said it’s necessary to address the “distorted and unfair” structure of the labor market in the financial sector much coveted by young job seekers.

It’s been nearly two decades since Korea faced its worst economic crisis. Companies went bankrupt, stock markets plummeted and households dug out gold from their safe deposit boxes for the government to restore its foreign exchange reserves.

Now it faces economic hardships that mirror the bad days of 1997. The government lowered its yearly growth outlook below 3% for the first time since 1999. Jobs are expected to shrink amid weakening domestic market. Companies are expected to slash investments and spending.

  Lack of Jobs

South Korea’s economic growth is not creating as many jobs as before, government analysis indicated Tuesday, saddling the country with bad news when growth projections are being marked down.

Numbers provided by the ministry of strategy and finance and Statistics Korea show the government expects 2.6% economic expansion in 2017 with around 260,000 new jobs, translating to 100,000 people being newly employed per 1% economic growth.

Such ratio is about half of what it used to be five years ago, according to detailed analysis.

In 2012, the country’s economy grew 2.3% but created 437,000 jobs, or 190,000 employment per 1% growth. In 2016, the country marked a 2.6% growth with 290,000 new jobs, or 112,000 jobs per 1%.

The ratio has also been low in the past, especially in the mid-2000s when 1% of economic expansion led to just over 50,000 jobs being created. In 2009 in the wake of financial crisis, the economy grew 0.7% but 72,000 jobs were wiped out.

Recovery began to take shape in 2010 with 323,000 jobs on 6.5% growth. Following years showed an improved ratio as people found jobs in accommodation, restaurant, wholesale and other service sectors despite lackluster growth figures.

The curve started to fall again in 2015 when the ratio stopped at 130,000 jobs per 1%.

Officials acknowledge that the job market could worsen as corporate restructuring and exports slowdown and threaten the manufacturing sector. The new anti-corruption law that limits gifts and paid-for meals, as well as self-employed businesses on the financial brink, may also add to the troubles, they said.

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