South Korea: Perspectives, Trends and Insights

South Korea is forecast by the IMF to achieve its 20th straight year of economic growth in 2018. South Korea has consistently out-performed all other advanced economies and is now the fourth largest economy in Asia. In 1960, per capita income in South Korea was 5 per cent of that of the United States. By the time of the global financial crisis, it had increased to 55 per cent (IMF, 2016). Within two-decades, South Korea joined the OECD and is now Australia’s fourth largest trading partner, with two-way trade at A$29 billion. In 2016, S&P raised South Korea’s long-term credit rating to AA, with a stable outlook. South Korea has the highest credit rating in the region – including higher than both Japan and China. In its recent in-country consultations, the IMF has endorsed the resilience of the South Korean financial system. The South Korean government’s fiscal position is the envy of advanced economies. Its financial markets are increasingly popular among investors. Its currency – the won – is deep and actively traded. It runs a wide current account surplus and is now one of the world’s safe haven economies. South Korea’s economy and financial markets have proved resilient to the region’s geo-political risks. South Korea is Australia’s third largest export market, and our fourth largest two-way trading partner. The Korea-Australia free trade agreement (KAFTA) has set a course for a rapid deepening in this already large trading relationship. It carries exceptional growth opportunities for many sectors that were formally heavily protected, or in which there was discrimination against Australian imports, including agriculture, horticulture and key markets in manufacturing, mining and services. Australia’s agricultural exports to South Korea alone are projected to increase by 73 per cent by 2030. South Korea’s exports to Australia are diversified. Its primary exports to Australia, representing 35 per cent of the total, are passenger vehicles, refined petroleum, telecommunications equipment and heating and cooling equipment and parts. But the remaining 65 per cent of South Korea’s exports to Australia are spread across over 60 different industries. Like other advanced economies, South Korea faces a number of structural challenges, including a rapidly ageing population. But South Korea is much better placed than most — in terms of its fiscal position, its environment for investment, its relative ease of doing business and overall economic policy posture — to deal with them. Its negotiation of over 50 free trade agreements has advanced a vigorous strategy of liberalisation and economic reform.