The Asian financial crisis of the late 1990s had a profound and long-term effect on the economy of South Korea. It ended a period of export-driven, manufacturing-fueled growth that averaged 9.3% between 1980 and 1996. The crisis that struck in 1997 unnerved companies. Today, they remain cautious about investing, and that has contributed to annual economic growth below 4% for the last 15 years.
Exports remain crucial to the country’s economy. South Korea benefitted from years of expansion in China; starting in 2000, China’s share of Korean exports rose from 17% to more than 30%. But the ill effects of the recent Chinese slowdown have created an economic drag in South Korea. Growth slowed from 3.3% in 2014 to 2.5% in 2015. Oxford Economics forecasts 3% growth this year, improvement spurred by monetary and fiscal policy actions and anticipated household spending.
Business travel industry insight
International visits to South Korea have increased an average of 6% per year since 2000, in line with regional trends. Over the next five years, the country is expected to become one of Asia’s fastest-growing travel markets.
Business travel spending exceeded US$16 billion in 2015, making the South Korean market about a fifth the size of the Japanese business travel market. Spending should increase by more than 6% annually over the next five years; the growth of international inbound travelers is expected to outpace domestic travelers.
International hotel chains are largely confined to the Seoul-Incheon metro area. They are slowly spreading to other cities like Busan and Daegu, but independent South Korean hotels still dominate most markets.
Long-haul flights to and from Seoul operate from Incheon International Airport. Secondary airport Gimpo handles only domestic and regional flights. Korean Air and Asiana together account for half of the departures at both airports. Air Busan, Jeju Air, Jin Air and T’way Air provide travelers with a low-cost carrier option at Gimpo.
- Domestic consumer spending remains healthy, and this is helping to support the country’s manufacturing sector.
- The weakness of the South Korean won against the U.S. dollar makes Korean goods and services more competitive in export markets.
- As U.S. and European Union economies recover, demand for South Korean exports is likely to strengthen.
- Global concerns about the state of the Chinese economy, increased tension with North Korea and changing interest rates in the U.S. weigh on the South Korean economy and currency.
- Opposition to the sale of South Korean companies to foreigners and a lack of liberalization in the service sector are deterring foreign direct investment.
- Large export-oriented companies, known as chaebols, dominate commerce, and their rise has eroded investment in small and medium-size enterprises. But recent calls for “economic democratization” could usher in change.
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