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Falling star?

Four decades ago, South Korea was identified as one of the star performers of the global economy. Its stellar performance was a consequence of the Korean government’s drive to promote export-led growth. It escaped the ‘middle-income trap’, which has ensnared so many, close to a decade ago. It provided perhaps the most successful model of all time for emerging markets to follow. But, now the process of rapid industrialisation has run its course, the economy has begun to slow. And the current response of ultra-loose monetary policy is doing more harm than good in South Korea, as across the developed world. Productivity growth has stagnated and real wage growth turned negative earlier this year. Moon Jae-in’s victory in the May presidential election, along with a pickup in global demand, gives grounds for optimism in the short term. But, ultimately, for its economy to return to a higher trend rate of growth, South Korea will need to shift to a new growth model, a feat that has eluded Japan these 25 years. It would mean focusing on promoting ‘fair competition’, stepping up existing corporate restructuring plans, and moving away from ultra-low interest rates, in order to tackle weak productivity.

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