Time is running out for the Korean economy
Published: 15 Jan. 2025, 00:01

The author is an economics professor at Dongguk University.
While political turmoil paralyzes the government, Korea’s economic golden hour is slipping away minute by minute. Three alarming signs underscore the gravity of the nation’s crisis.
First, Korea has the highest suicide rate and the lowest fertility rate among OECD countries — by a significant margin. According to Statistics Korea’s 2023 Cause of Death Report, suicide is the leading cause of death for people in their teens through their 30s, with more than half of deaths among those in their 20s attributed to suicide. Fertility rates are even more alarming. South Korea is the only OECD country with a total fertility rate below 1. Young people are caught in a brutal cycle of competition, worrying about basic survival before they can even consider starting families.
Second, the concentration of resources in the Seoul metropolitan area is at an unprecedented level, while nonmetropolitan regions are disappearing at an alarming rate. Currently, over half of the nation’s population, economic activity and jobs are concentrated in the capital region — a level rarely seen globally. The Korea Employment Information Service reports that as of 2024, 57 percent of South Korea’s 228 municipalities will be at risk of extinction, a figure expected to encompass all municipalities by 2047.
Third, Korea’s household debt is nearly 90 percent of GDP, among the highest in the OECD, while real income growth per capita continues to decline. Adding to this burden is the intergenerational cost of an aging population. Every day without pension reform adds 88.5 billion won ($60 million) to the burden on future generations. According to the National Assembly Budget Office, health insurance spending will nearly double from 98.7 trillion won in 2024 to 197.4 trillion won in 2033. Basic pension expenditures, which totaled 7 trillion won in 2014, have already surpassed 26 trillion won this year and are projected to approach 40 trillion won within five years.
The external environment is also deteriorating. Former U.S. President Donald Trump’s America-first policies weaponize tariffs to force domestic investment. Meanwhile, China is emerging as South Korea’s fiercest competitor in advanced industries such as EVs, batteries, petrochemicals, shipbuilding and semiconductors. This year, Microsoft alone is investing over 100 trillion won in AI data centers. The climate crisis, evident in disasters like the wildfires in Los Angeles, continues to intensify, while North Korea’s involvement in the Russia-Ukraine war adds to geopolitical uncertainty in the region.
If today’s political chaos reflects the limitations of South Korea’s Sixth Republic system born from the 1987 Constitution, the current economic and social challenges highlight the contradictions in the post-1997 financial crisis economic framework. South Korea’s window for structural reform is less than a decade, as the second baby boomer generation born between 1964 and 1974 is set to retire over the next 10 years. According to the National Pension Service, payouts will exceed contributions starting in 2027. The time for reform is now, while this generation remains in the work force.
The path forward is clear. First, South Korea must strictly manage household debt and reform housing policy to avoid fueling real estate prices. Housing prices are increasingly driven by loans, and government-backed loans distort the market by preventing a soft landing. Public funds should instead be directed toward building affordable rental housing.
Second, South Korea must replicate its post-1997 crisis success when large-scale investments in internet and IT laid the foundation for the 2000s. The nation must channel all available resources into fostering future industries like AI. Reliance on construction investments to temporarily boost economic indicators must end. South Korea’s infrastructure is already among the most advanced globally — resources should focus on industries that will drive future growth.
Third, pension reform must be completed within the year. The fiscal system, designed for a growing population, must be overhauled to reflect today’s shrinking demographics. This includes reforming basic pensions and subsidies tied to tax revenues.
South Korea’s median age has risen sharply, from 30.3 years in 1997 during the Asian financial crisis to 36.7 years in 2008 during the global financial crisis to 46.7 years in 2023. In five years, half the population will be over 50. As with individuals, aging economies lose resilience and vitality, leaving South Korea increasingly vulnerable to shocks and entrenched in long-term stagnation. Stimulating the economy through consumer subsidies, debt-driven real estate booms and construction investments only provides temporary relief while undermining future growth potential.
This is the moment for decisive, surgical action. Structural reform and investments in industries that can generate long-term value are urgently needed. Time is running out — less than a decade remains.
Translated using generative AI and edited by Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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