NABO Economic and Industry Trends & Issues (No. 26)

Published on February 25, 2022
Published by Economic Analysis Department

I. Economic and Industry Trends
 As of late, although the Korean economy has been maintaining a recovery trend centered on exports, internal and external uncertainties are elevating due to the spread of COVID-19 variants, the Ukraine conflict, and the tightening monetary policy stance of the US. Exports in January increased for 15 consecutive months to record $55.32 billion, but service industry production fell 0.4% MoM as of December 2021 due to strengthening social distancing measures to curtail the spread of the COVID-19 variants, plus oil and natural gas prices in January were higher MoM due to the Russia-Ukraine conflict. In the meantime, manufacturing production maintained an upward trend MoM and YoY as of December 2021, and the total number of employed persons increased by 1135,000 YoY in January due to the base effect of a sharp decrease in the previous year. In the domestic financial market, the KOSPI fell to 2,663 at the end of January and the won/dollar exchange rate rose MoM due to signals of a possible US interest rate hike, the Ukraine crisis, and the Bank of Korea's base rate raise. In January, consumer prices rose by 3.6% YoY due to the continued upward trend of prices in agriculture, livestock, marine, and industrial products, along with services prices. During the same month, the volatility rate of the nationwide home sales price index and jeonse/monthly rent price index increased slightly MoM.

Ⅱ. Pending Issues in the Economy and Industry
 ■ Economic Significance and Implications of Increasing ESG Investment in Korea
  The economic significance of ESG investment and management is that private economic entities themselves try to internalize externalities by putting in place checks and balances. If market failures occur, led by the principal-agent problem due to information asymmetry between corporate management and internal and external stakeholders, they may become an obstacle to further penetration of ESG investment and management. Currently, at Korean companies, the correlation between environmental (E) and social (S) scores, which are highly related to externalities, and financial performance is relatively low. For this reason, the government needs to induce the expansion of positive externalities for the sustainable growth of the national economy while maintaining a policy stance that supports autonomous formation of ESG investment and management ecosystem.
 ■ Characteristics and implications of the recovery phase during the COVID-19 pandemic and past economic crises
  A comparison of the recovery phase of the Korean economy during the COVID-19 pandemic against the economic crisis by spending sectors in the recent past indicates that consumption contracted mainly in service consumption as economic activity was constrained due to the shock from COVID-19, but the decrease was relatively small compared to the past foreign exchange crisis. On the other hand, investment maintained a positive level even during the COVID-19 pandemic thanks to a solid increase in facility investments and intellectual property product investments, demonstrating a departing pattern from the previous economic crisis period. Exports declined sharply, initially due to the impact of COVID-19, before quickly moving towards recovery and maintaining it, generating a similar growth rate as during the global financial crisis. The growth rate of the Korean economy in 2022 is expected to depend on the pace of private consumption recovery and whether recent export growth trends will remain. In particular, whether current robust export growth will continue is likely to depend on whether the economies of emerging countries will slow down due to early normalization of monetary policy by the US Fed, and the rate of decline in China's economic growth rate.
 ■ Analysis of the achievement of the UN Sustainable Development Goals (UN SDGs)
   In October of last year, the government approved the 「Framework Act on Sustainable Development」 to elevate the legal concept and status of sustainable development. The UN Sustainable Development Goals (SDGs) are 17 goals that the world has resolved to achieve jointly by 2030, suggesting where mankind should be headed based on people, planet, economic prosperity, universal peace, and international partnership. Korea's achievement rank in SDGs is 28th, and compared to the OECD average, in hunger, industry, innovation, and sustainable consumption are higher in rank, but in gender equality, climate change, and terrestrial ecosystems, there is room for improvement. The SDGs are meaningful in that they present common directions, not only for global issues, but domestic ones as well. Accordingly, the government needs to proactively set goals and prepare implementation methods in its forthcoming plan, 「National Basic Strategy for Sustainable Development」

Ⅲ. Economic and Industry Issues
 ■ Analysis of factors affecting housing prices
  In Korea, housing prices are mixed with market expectations for future housing prices in relation to changes in monetary policy, changes in the burden of holding taxes, tightening loan regulations, supply shortages, and low real interest rates. Accordingly, the factors of changes in national housing prices after the global financial crisis were estimated. It turned out that the housing prices displayed a positive (+) correlation with the housing prices in the previous quarter and the number of households, and a negative (-) correlation with interest rates and additional housing supply. Although affected by real estate regulations since August 2017, the LTV differential application after December 2019 was introduced simultaneously with the financial support policy after COVID-19, making its effect limited. The factors affecting housing prices were estimated to differ for each region, except for housing prices in the previous quarter. In the regions with high real demand for housing and low fluctuations in housing prices, the effect of housing prices on current housing prices was greater. Housing prices fell mainly in areas with unsold apartment properties such as Busan, Daegu, Gwangju, and Gyeonggi, and it was found that the housing prices were affected by interest rate fluctuations mainly in Seoul, Gyeonggi, and Incheon, where the share of household loans and housing purchase burdens are high. Keeping this in mind, the government should establish housing policies that are suited to address regional conditions and monitor the housing market in line with shifts in internal and external monetary policy stances.