ⓒKBS News

South Korea's economy was not alone when it comes to the bruising it received from the COVID-19 pandemic last year. Infections continue to rise quickly, but news of vaccinations starting soon have buoyed expectations of a much-awaited economic turnaround. KBS World Radio News spoke to experts for their take on the coming year's economic prospects.

Lingering uncertainties posed by the COVID-19 pandemic will continue to sway the path of South Korea's economic growth this year, according to economists. Although the world's 12th-largest economy should stage a rebound, experts say any growth could be weakened considerably as the pandemic rages on while vaccinations are delayed.

The South Korean economy fared better than many other countries in 2020, boosted in part by a large amount of government spending. Buoyed by such figures, the government forecasts the country's economy to grow three-point-two percent in 2021.

But experts say that outlook might be a bit too rosy.

Shin Se-don, an economics professor at Sookmyung Women’s University, says a strong won, which makes Korean products more expensive to buy overseas, and a protracted pandemic continue to weigh on the economy.

[Shin Se-don, economics professor at Sookmyung Women's University (English)]

"I think a 2021 GDP growth outlook of three-point-two percent is a little optimistic, because of two concerns at the moment. First, the Korean won has been very strong during the latter part of 2020. And that will probably jeopardize exports in 2021. Another concern is that COVID-19 continues to have a very negative impact on private consumption."

The South Korean economy is expected to have shrunk one-point-one percent in 2020, according to state-run Korea Development Institute(KDI), which would be the biggest full-year drop since 1998. KDI projects the economy to grow just over three percent this year.

South Korea's economic growth is driven by exports and economists, including Shin, say a meaningful rebound in 2021 will be difficult. And companies, as a result, will have to remain cautious in their spending and hiring plans.

[Shin Se-don, economics professor at Sookmyung Women's University (English)]

 "I think the won has been one of the most important factors contributing to exports. And that will have a negative effect on exports in 2021. Already, 2020 exports have declined seven percent and at best, I think the growth rate of exports in 2021 will be very difficult to get into positive growth."

Yang Jun-sok, an economics professor at the Catholic University of Korea, said private spending is expected to remain weak because of social distancing and quarantine measures that forced many consumers to stay home and stores to either close down or open for shorter periods. 

[Yang Jun-sok, professor of economics at Catholic University of Korea (English)]

"Domestic consumption is not expected to do spectacularly well. The Bank of Korea in August projected that consumption for 2021 would rise by three-point-eight percent, but this number was revised downward in November to three-point-one percent. Business investment for 2021 was revised downward as well from an estimated six-point-two percent in August to four-point-three percent in November. Now consumption will be better than 2020 figures, because consumption went down by four-point-three percent in 2020. But consumption is not expected to recover to 2019 levels."

Further weighing on the economy, household and mortgage debt grew steeply as South Koreans borrowed to make ends meet and purchased homes amid soaring property prices. But experts like Yang said the amount so far is still manageable.

[Yang Jun-sok, professor of economics at Catholic University of Korea (English)]

"The size of the household debt – now greater than 100 percent of GDP – is somewhat worrying. But note that household debt used for housing is in a relatively healthy position – it is lent mostly to people with good credit ratings – and the new regulations, such as DSR have made sure that excessive loans for housing was limited. However, the relatively small proportion of the loans made to people with lower credit ratings – not for housing but rather to get by due to the recession - is more worrying. These loans also tend to be concentrated in the secondary, non-bank lending sector, so these loans are worrying, but as a proportion of total debt, they are not very high."

Positive factors exist as well.

For instance, global memory chip market conditions are expected to improve, which bodes well for Korea's bread-and-butter semiconductor exports. And the government's plans to spend 63 percent of its record 558 trillion won annual fiscal budget in the first half of this year should offer some much-needed support, according to experts.