The recent economic stagnation in developed countries has caused concerns over the possibility of Korea falling victim to the same kind of long-term economic downturn that occurred in Japan, as the two countries have shown similar trends in terms of changes in population and economic structure.
Japan’s long-term recession following the collapse of the massive economic bubble is attributed to a combination of multiple factors, including the balance sheet recession, government’s failure to deliver effective policies, declining population, low domestic consumption, and deflation.
Korea’s recent demographic shift and household debt pose serious risks of a slump similar to that of Japan.
● Changes in the decline of the working age population and total population are expected to occur in 2017 and 2030, respectively, and the economic growth rate is predicted to drop to two percent in the late 2010s and further to one percent in the 2020s.
● Household debt is already beginning to undermine consumption levels nationwide and might cause further stagnation of consumption and the economy due to the accumulation of overdue principal and interest payments and deleveraging, even without a collapse of the economic bubble.
There is also the possibility that the stagnation will be steadily exacerbated over the long term due to a shift in the demographic and household debts, rather than undergoing a financial bubble collapse and economic downfall, as in the case of Japan.
● The negative impact of the economic downturn could be aggravated, as mitigating household debt might be lead to the issue of a declining working age population.
It is therefore crucial to take several measures: meticulously manage the risks of household debt; actively seek ways of alleviating the issues of the low birth rate and population aging; establish economic cooperation with North Korea in order to embark on new economic pursuits; and make efforts to offset the effects of decreasing domestic consumption.
한국경제의 일본형 장기부진 가능성 검토(Possibility of Korean industries experiencing the same kind of long-term economic downturn that occurred in Japan)
|Series Title; No||e-KIET 산업경제정보 / 2015-07|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < General
Economy < Financial Policy
Social Development < Population
|Holding||KIET; KDI School|