South Korea's GDP grew at its fastest rate in over five years during Q3, due to a rise in consumer spending, according to AFP. However, manufacturing only grew 0.1 percent, and South Korean exports remain lackluster from a sluggish world economy and waning demand from China. South Korea's central bank predicts 2.7-percent growth for 2015.
The country faces lingering economic issues, but the MERS outbreak that occurred over the summer brought the economy to its knees, scaring away tourists and domestic consumers. South Korean tourism plunged over 60 percent since the outbreak. MERS, otherwise known as Middle East Respiratory Syndrome, is a deadly viral infection that has taken the lives 36 South Koreans. Going forward, leadership will focus on the inevitable rate hike from the U.S. Federal Reserve and China's slow growth.
Regarding the Fed, leaders have certain measures in place to prepare for the increase, such as maintaining an account surplus and boosting currency reserves. South Korea possesses an account surplus of $52.4 billion, notes CNBC. This marks a 33-percent spike, and the surplus mostly stems from low-value energy imports. With that, a sluggish export sector represents one of the main factors driving down the economy. South Korean exports account for half of GDP, and one-fourth of exports go to China.
China's troubles have caused an 8.3-percent drop in South Korean exports when compared to last year. Finance minister Choi Kyung Hwan stated that the government intends to change the types of goods shipped to China. The need to diversify exports into alternative markets remains paramount, but such a plan would take time to implement as the economy stagnates.
South Korea has short-term plans, but lingering issues will continue to plague the country. First, young graduates confront a tough labor market with fewer career-oriented jobs. The labor system gives weight to seniority rather than merit, leaving many young people without meaningful jobs. The government also expresses concern about the high number of young people not having children, and this becomes especially problematic as more of the population gets older.
South Korea has some of the lowest birth rates in the world, and officials spent over $70 billion in the past decade to increase birth rates. Lower birth rates prove common in post-industrial societies, but an uncertain future makes many people nervous, causing them to delay marriage and children. This serves as one area where the government must make substantive reforms to the economy, while doing everything possible to boost business and consumer morale to instill hope for a better future.