Brexit Vote and Domestic Hurdles Hamper South Korean Economy

June 28, 2016South Koreaby EW News Desk Team

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South Korean officials contend that the Brexit vote will have a slight impact on the economy, according to The Hankyoreh. The government is also concerned about the U.S. Federal Reserve’s potential interest rate hike and troubles within the shipbuilding industry. The South Korean economy is also plagued by low exports, a weak job market/ and corruption.

South Korea suffers from multiple domestic woes, but the plight of the world economy poses an equal threat to the East Asian country’s growth potential. The Brexit vote will have no direct impact on the economy, but the uncertainty adds more instability to an economy suffering multiple blows.

At this point, the government is trying to allay fear of the unknown, which has crippled South Korea’s economy in the past. For instance, Seoul is still recovering from the ramifications of the MERS outbreak, most notably the state of panic, which paralyzed the economy. Although South Korea has since recovered from the health crisis, officials aim to quell any form of uncertainty at all cost.

Domestic Troubles

Aside from world economic troubles, South Korea is undergoing a host of domestic problems that will drag the economy down in the long run. First, the job market is a prime issue holding back development, especially as many young people fail to get ahead in a system, which favors seniority over meritocracy.

Further, various sectors of the economy are saddled with debt, most notably the shipbuilding industry. Shipbuilding has long been a major contributor to South Korean growth, but the government is tied to the industry through state-based lenders, all of whom could take a major hit if ship companies undergo bankruptcy, notes CNBC.

Moreover, shipbuilding troubles have endangered certain sectors of the housing market as firms lay off employees. Many foreign workers that work in shipbuilding are leaving the country in droves as companies downsize, hurting the rental housing market in certain parts of the nation.

In addition, the overall state of the housing market remains in peril as many homeowners contend with high household debt, preventing many from propping up the economy through the purchase of goods and services.

Government Response

The government has proposed a $17 billion fiscal stimulus package designed to stimulate the economy. The package is in reaction to the Brexit vote and troubles in the shipbuilding industry, including the lack of economic activity at the domestic level. Moreover, authorities will extend the budget to counter the lingering effects of the MERS outbreak along with any other trouble that may arise from economic turbulence.

Stimulus measures will provide some short-term relief, but leaders must implement crucial structural reforms in such areas as the labor market to secure long-term prosperity.

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