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Hans India
4 days ago
- Business
- Hans India
South Korea faces risks from US tariff due to reliance on exports, manufacturing
South Korea has the second-highest share of manufacturing in its gross domestic product (GDP) among major economies, data showed on Sunday, underscoring its vulnerability to the aggressive tariff measures by the United States. The manufacturing sector accounted for 27.6 per cent of South Korea's GDP in 2023, far higher than the average 15.8 per cent of the member countries of the Organisation for Economic Cooperation and Development (OECD), according to the National Assembly Budget Office (NABO). It ranked second among OECD member countries, following Ireland at 31 per cent. By comparison, Germany recorded 20.1 per cent and Japan 20.7 per cent. "While most advanced economies are seeing an increasing share of the service sector, South Korea continues to maintain a relatively high level of manufacturing output," the office said. "Given the size of its economy, South Korea is still regarded as a country with a relatively high dependence on manufacturing." The manufacturing sector remains the backbone of the Korean economy, with key industries, including semiconductors, rechargeable batteries, shipbuilding and automobiles, maintaining global competitiveness. Driven by its manufacturing-based economy, South Korea remains highly dependent on exports as a key growth engine. As of 2024, exports accounted for 44.4 per cent of the nation's GDP, compared with the OECD average of 30 per cent. Among the Group of Seven (G7) nations, Germany posted the highest export-to-GDP ratio at 41.8 per cent, followed by France with 33.9 per cent, Italy with 32.7 per cent and Canada with 32.4 per cent. The US recorded 10.9 per cent. South Korea's export dependence on the US stood at 18.8 per cent in 2024, Yonhap news agency reported. Given the country's high manufacturing ratio and export reliance on the US, the envisioned reciprocal tariffs are feared to deliver a major economic blow. Last-minute negotiations are under way between Seoul and Washington, as the Donald Trump administration has warned that South Korea will face a 25 per cent reciprocal tariff unless a deal is reached before August 1. "If the proposed reciprocal tariffs take effect, the Korean economy could suffer a significant impact," said Yang Joon-seok, an economics professor at the Catholic University of Korea. "We should leverage our strengths in key sectors, such as shipbuilding and semiconductors, during the negotiations," he added.
Korea Herald
02-04-2025
- Business
- Korea Herald
Low birth rate's far-reaching impact: Sustainability of teacher pensions under threat
The impact of South Korea's demographic crisis is far-reaching, with one lesser-known consequence being the threat to the sustainability of the teachers' pension system. As the school-age population shrinks and schools close, teachers are losing their jobs and becoming legally eligible for pension payouts much earlier than expected — sometimes as early as their 30s. According to data released by the National Assembly Budget Office, 410 pension recipients became eligible prematurely due to school closures as of 2024. Among them, individuals in their 30s and 40s account for 16 percent. It was the first time that the number of early recipients surpassed 400 since the pension program was introduced in 1975 as a mandatory scheme providing financial security for private school teachers and staff in Korea. Of the 410, recipients in their 60s and older comprised the largest share with 196, followed by 149 in their 50s. The remaining 65 recipients were younger — 63 in their 40s and two in their 30s. "The financial sustainability of the Teachers' Pension fund is already in question, and early pension payouts due to school closures will further strain future finances," a NABO official said. Statistics Korea projections indicate the number of children ages 6 to 21 will decrease further from 6.97 million in 2025 to about 4.1 million by the early 2040s. After a slight rebound in the early 2050s, the decline will continue. The NABO financial outlook warned that without systemic changes, the teachers' pension fund will run a deficit by 2028 and be depleted by 2042.
Korea Herald
23-02-2025
- Business
- Korea Herald
Report warns of explosive debt increase, growth freeze
Fueled by the world's fastest aging population, South Korea's national debt is projected to surge sixfold to 7,000 trillion won ($4.87 trillion), while the country's productivity is expected to nearly stagnate by 2072. The National Assembly Budget Office detailed this grim outlook in its "Long-term Fiscal Outlook Report for 2025-2072," highlighting the significant impact of demographic shifts driven by a rapidly aging population and a declining workforce. The forecast is based on the assumption that existing laws and systems will remain unchanged. According to the report, by 2050, the national debt is expected to reach a level where the country's production will no longer be sufficient to cover it, with the debt-to-GDP ratio projected to surpass 100 percent. Currently at 48 percent, the ratio is forecast to surge to 173 percent by 2072, meaning the country's debt will be 1.73 times its annual economic output. The country's national debt is expected to increase nearly sixfold by 2072, rising from the current 1,270 trillion won to 7,300 trillion won. In the same period, the gross domestic product growth rate is projected to plummet to 0.3 percent by 2072, down from the anticipated 2.2 percent this year. The report highlights that increased spending driven by the world's fastest-aging population is a key factor in the explosive growth of national debt. "The total spending-to-GDP ratio is projected to rise as mandatory expenditures increase due to the growing number of public pension beneficiaries and escalating welfare costs from an aging population," the report stated, noting that this proportion is expected to grow from 25.5 percent in 2025 to 33.6 percent. This translates to an average annual spending growth rate of 1.6 percent over the next 47 years. In contrast, Korea's national income is anticipated to grow at only half that pace, averaging 0.8 percent per year until 2072. Last year, Korea became the world's fastest "super-aged society," transitioning from an "aged society" in just seven years, as the proportion of its population aged 65 or older increased from 14 percent to 20 percent. This proportion of the senior population is expected to rise further, reaching nearly half of the population — 47.7 percent — by 2072. The number of over-65 population is projected to grow from 10.51 million in 2025 to 17.27 million by 2072. In contrast, the economically productive population, aged 15 to 64, is projected to decline from 35.91 million to just 16.58 million during the same period. Such demographic change is set to undermine the financial stability of the country's social security programs, becoming a major driver of Korea's rising fiscal deficit. The largest of these programs is the National Pension Fund, which is projected to peak in reserves in 2039, before entering negative growth the following year, ultimately being depleted by 2057. Upon depletion, the fund's accumulated fiscal deficit could reach approximately 2,900 trillion won, or 60 percent of GDP, by 2072. The report underscored that slowing population decline is critical to curbing national debt. According to the report, the projected national debt-to-GDP ratio of 173 percent by 2072 is based on a "medium" population estimate of 36.22 million. If demographic trends improve and the population declines only to the "high" estimate of 42.82 million, the debt ratio could drop by 9.8 percentage points to 163.2 percent. Conversely, if the population shrinks to the "low" estimate of 30.17 million, the ratio could rise to 181.9 percent. Hope lies in a potential rebound in the birth rate: "Preliminary data suggests Korea's total fertility rate will rise to 0.75 in 2024, surpassing the government's projection (of 0.68) and marking the first increase in nine years since 2016. ... It is crucial to maintain at least a 'medium' level of population structure to prevent a rise in the national debt."
