Economic analysis: analysis of incoming government policies and economic implications

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Change of political direction under the new Conservative government

Conservative opposition candidate Yoon Suk-yeol has been elected Korea’s 20th president. The Liberal government’s shift in political power after five years made it clear that voters were unhappy with the Moon administration’s policies, with measures aimed at dampening demand in the housing market leading to soaring housing prices and a shortage of Jeonse’s offer. Going forward, we expect the president-elect to reverse many of the policies introduced by the incumbent government.

The policy focus on growth and the private sector will have broad economic effects

The incoming administration will prioritize: 1) growth over distribution; 2) growth led by the private sector rather than the government; 3) businesses rather than households; 4) adjustment of monetary tightening measures; and 5) the Korea-US alliance on balanced diplomacy. President-elect Yoon Suk-yeol pledged during his campaign to introduce growth-oriented and private sector-oriented economic policies. We therefore expect the president-elect to focus on expanding production and supply by easing business regulations, rather than increasing effective demand by offsetting revenue losses.

The change in policy direction is likely to have broad economic effects. First, the private sector should become the main engine of growth. Second, the government will aim to increase the rate of potential growth by encouraging participation in economic activities and improving productivity. Third, efficient resource allocation will reduce the excess money supply, which will help dampen asset price inflation. Fourth, the strengthening of Korea-US relations may increase the risk of economic retaliation from China, but benefit Korean companies as the United States focuses on restructuring its global supply chain. . Fifth, inflation could go either way with expected upward pressures from utility rate hikes and downward pressures from slower minimum wage increases.

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