Korea Grew 1% in Q3, So Why Is Lee Jae-myung Warning About Europe-Style Unrest?

Korea Grew 1% in Q3, So Why Is Lee Jae-myung Warning About Europe-Style Unrest?

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South Korea’s economy grew 1 percent in the third quarter, more than three times the 0.3 percent the Bank of Korea had forecast in August, and the headline lasted about as long as it took President Lee Jae-myung to read it. At the same cabinet meeting where the number came up, Lee told his ministers to look at the street protests in France and elsewhere in Europe and treat them as a warning for Korea.

What Lee said, and why Europe

The remarks came at the 46th cabinet meeting at Cheong Wa Dae, the presidential office in Seoul, on October 27. Lee said large protests had recently broken out in several European countries, with demonstrators demanding more public investment, cheaper energy and more housing. Many experts point to fuel costs, high prices and inequality, he said, but in his view “the most fundamental cause is ultimately low growth.” Years of slow growth, he argued, feed youth unemployment and polarization and hollow out the tax base, which is what makes a society fragile.

The twist is that Korea’s numbers currently look anything but fragile. Exports rose 2.3 percent and facility investment 4.1 percent in the quarter, and Lee noted that Korea’s second-quarter current account surplus was the world’s second largest, bigger than Germany’s and Japan’s combined. His point was that the indicators and ordinary life have come apart: recovery in household finances is slow, and gaps in income, assets and jobs remain. Young people are struggling, he said, because “the total volume of opportunity is insufficient.” Private consumption actually fell 0.2 percent in the quarter, which is the part of the GDP table that explains the mood.

The to-do list for ministers

The practical content of the meeting was a set of instructions for the rest of the year. Lee told officials to use the government’s expanded fiscal room to invest in advanced industries and to lift domestic demand in ways people can actually feel. He singled out housing: public projects that have fallen behind schedule should be sped up, and housing starts should be raised “as much as possible,” backed by state credit guarantees and, if needed, direct fiscal support. The logic is that more construction also props up a building sector that has been sluggish even as chip exports boomed.

Several smaller items show how granular Lee’s management style can get. He backed hiring at least 10,000 people for local tax-arrears collection teams, reasoning that a worker paid 3 million won a month (roughly $2,100) who recovers 2 million won is still worth it. He floated government help with farm labor costs, modeled on a local scheme. And the Financial Services Commission reported a plan to guarantee microloans of up to 1 million won (about $700) for low-credit borrowers while toughening penalties on illegal lenders. Lee also ordered the Public Procurement Service to shut out bidders with no real delivery capacity after the agency reported that new rules had cut the number of bidding companies by about 84 percent.

What happens next

The Bank of Korea’s August forecast for full-year growth was 3.3 percent, and with the third quarter running well ahead of plan the bank is widely expected to revise upward when it publishes new projections next month. Lee’s framing suggests the government will not treat a stronger number as a reason to ease off: his argument is that a healthy debt ratio comes from growth, not restraint, which is a convenient thing to believe when you are also asking for more spending on housing and jobs. For English-speaking readers, the thing to watch is whether the “regional economies and neighborhood businesses” measures Lee wants executed by year-end translate into visible stimulus, and whether the housing-starts push shows up in a construction sector that has lagged the rest of the economy.

Sources

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