Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok presides over a meeting on global economy and its impact on Korea at the Export-Import Bank of Korea in Seoul, Monday. Courtesy of Ministry of Economy and Finance

With President Yoon Suk Yeol's term halfway through, high debt, stagnant household income, a massive tax revenue shortfall, and other challenges are preventing many Koreans from feeling the economic recovery promised by his administration.

The Yoon government was tasked with balancing growth and inflation when the president began his single, five-year term on May 10, 2022.

In a press release, Monday, the Ministry of Economy and Finance highlighted moderating inflation as a key economic achievement over the past two and a half years.

The ministry noted that inflation peaked at 6.7 percent in July 2022, but eased to 1.3 percent in October this year, saying, "Such a trend of price stability is taking shape more vividly."

However, the Citizens' Coalition for Economic Justice (CCEJ), a Seoul-based civic group, disagreed with the government's evaluation of inflation, dismissing it as "self-praise."

"Consumers find it too expensive to make kimchi this winter, after struggling with a surge in prices of apples and other popular fruits earlier this year," the coalition said.

Citing data from the International Monetary Fund (IMF), the coalition said household debt in Korea amounted to 2,248.2 trillion won ($1.61 trillion) as of the first quarter of this year, up 12.5 percent compared to 2020.

The pace of increase over the cited period was the third highest among the surveyed countries, following Australia at 20.7 percent and Canada at 19.4 percent.

The IMF data also showed that the ratio of Korea's household debt to gross domestic product (GDP) in the first quarter of this year was 92.1 percent, the fifth highest among 30 major economies.

The ministry, on the other hand, emphasized that the household debt-to-GDP ratio has declined under Yoon's term, from 97.3 percent in 2022 to 93.6 percent in 2023.

"The data on household debt shows that softened inflation is not necessarily linked to an improvement in public livelihood," the coalition said.

Ha Joon-kyung, an economics professor at Hanyang University, said the slow growth of real income is limiting the impact of cooling inflation on people's daily lives.

Compared to 2023, the monthly average real income, or earnings adjusted for inflation, declined 1.6 percent in the first quarter of this year and increased 0.8 percent in the second quarter. However, the monthly real income in the April-June period averaged 4.35 million won, lower than the 4.49 million won seen in the same period of 2022.

"Under the circumstances, people hesitate to spend despite easing inflation," the professor said. "Such pressing financial conditions are also holding back the country's private spending and economic growth."

Private spending, one of the twin engines of Korea's growth, remains stagnant, although it managed to grow 0.8 percent in the third quarter from the previous three-month period.

It was accordingly responsible for the slowdown in Korea's GDP growth, which increased only 0.1 percent quarter-on-quarter in the July-September period, after contracting 0.2 percent in the April-June period.

Whether exports can sustain growth momentum remains in question, after posting a 0.4 percent quarter-on-quarter contraction in the third quarter. This marked the first contraction since the fourth quarter of 2022.

Against this backdrop, multiple financial institutions, both domestic and overseas, have been revising down Korea's 2024 growth forecast from the mid-2 percent to lower-2 percent range.

Ha at Hanyang University argued that U.S. trade protectionism under a second Donald Trump presidency would further hurt Korea's exports by driving up the won-dollar exchange rate.

Regarding financial soundness, the ministry emphasized that it plans to reduce the year-on-year growth in the national debt-to-GDP ratio from 5.7 percent in 2020 to 0.8 percent in 2025.

However, the government is also grappling with a tax revenue shortfall, which hit a record-low 56.4 trillion won in 2023 and is estimated to fall to 30 trillion won this year.