The Ministry of Foreign Affairs and Trade assesses the South Korean economy, its challenges & opportunities, and how New Zealand can work with those

This is a re-post of a MFAT briefing on South Korea. The original, including Part 2, is here.

After a bumpy 2023 affected by global economic downturns, changing relations with the US and China, and fluctuation within the semiconductor industry, 2024 looks to be the year Korea focuses on stabilisation and economic growth. This is not going to be without challenge however, with domestic issues, such as the declining fertility rate, set to have a significant impact on Korea’s fiscal policy and economic future.

Underpinned by the Korea-New Zealand Free Trade Agreement (KNZFTA), the bilateral trade and economic relationship is an area of both success and opportunity, and there is room for significant growth. In 2024, Korea and New Zealand will hold both the KNZFTA Joint Commission and the Korea-New Zealand Joint Economic Consultations.

This report provides an overview on Korea’s economy as well as our bilateral trade and economic relationship.

Korean economic update

Last year was a challenging one for the Korean economy. According to the Ministry of Trade, Industry and Energy (MOTIE), Korea’s exports saw a 7.4 percent decline in 2023, largely driven by the downturn in the semiconductor sector and global economic uncertainties. Economic issues will be at the forefront of the political agenda ahead of this April’s National Assembly Election, and the government has stated that its focus for the year ahead will be to stabilise and revitalise the economy.

Korea’s forecasted economic growth for 2024 is estimated at 2.4 percent. Reflecting the public’s prioritisation of economic performance in voting, President Yoon focused his New Year’s speech on economic revitalisation. The speech centred on increasing export activities, large scale investment into the semiconductor industry, and the financial burden of small to medium enterprises (who make up 99 percent of number of enterprises in Korea and 48 percent of exports). Electric vehicles, semiconductors, and continued economic diplomacy in the Middle East were identified as key drivers for Korea’s economic recovery in 2024.

The negative economic effects of the declining fertility rate

One of the biggest economic challenges Korea continues to face is their record low fertility rate (the average number of children born to a woman over her lifetime). This is already having a detrimental impact on the country’s economy and is only going to grow as the population ages, the work force reduces, schools are forced to close due to lack of students, and rural populations decline. Policy makers continue to grapple with solutions to resolve the issue. There is no easy answer.

The statistics alone tell a stark story. According to Statistics Korea:

• Korea's fertility rate continues to set world record lows, hitting 0.72 in 2023 – little more than a third of the rate required to maintain a population (2.1), assuming no immigration.
• The number of newlyweds has been decreasing year on year over the past decade, with only 1.03 million in 2022, and less than 1 million in 2023.
• Among newly married couples, 46.4 percent have no children, the highest since records began in 2015.
• Korea’s population (currently 51.6 million) is expected to decline to 26.3 million by 2072 if the fertility rate does not increase.
• By 2072, Korea is expected to be the only OECD member with a workforce that makes up less than 50 percent of the total population.
• The proportion of seniors aged 65 and above is expected to rise from 17.4 percent in 2022, to 47.7 percent in 2072. 

Addressing this issue is a key priority for the Yoon Government. So far, measures introduced have focused on financial incentives, including tripling monthly allowances paid to parents of children under two and a reduction of mortgage interest rates for parents. Policymakers are now looking for ways to cope with the aging society and coming to terms with the reality that it will take decades to reverse the demographic trend. A significant amount of budgetary and policy focus will be required to mitigate the effects and invest in the future.

Bilateral trade relationship

Our trade relationship has been strengthened by the KNZFTA, which came into effect in 2015. Korea is currently New Zealand’s fifth largest trading partner with NZ$8.81 billion in total trade to year end September 2023. Key New Zealand exports to Korea include dairy, aluminium, and wood (total exports: NZ$2.86 billion), and key imports from Korea include mineral fuels and oils, and vehicles and machinery (total imports: NZ$5.95 billion), with the trade balance favouring Korea to the tune of over NZ$3 billion.

There are many success stories to highlight in our bilateral trade relationship, but two recent examples of note are Zespri Korea and health tech.

• Zespri Korea recently celebrated one million trays of domestically produced Zespri gold kiwifruit. While this achievement has taken over 10 years, the next million is already in the Zespri team’s sights. The Zespri-licensed gold kiwifruit grown in Korea’s southern island of Jeju is a real success story of bilateral agricultural cooperation. The Jeju operation consists of 292 growers and three pack houses. The Governor of Jeju has recently granted access for Zespri kiwifruit growers to a Free Trade Agreement Supporting Fund (a Korean government support fund for Jeju domestic growers), the first time access has been granted to a foreign brand.
• In December 2023, Korean AI cancer diagnostics company Lunit announced their US$193 million acquisition of New Zealand based Volpara Health – renowned for its AI-enabled software for early detection and prevention of breast cancer. This is a major investment which recognises New Zealand’s expertise in the health tech sector.

Bilateral economic cooperation

Beyond trade, Korea and New Zealand enjoy many areas of positive economic cooperation, including in science and technology, tourism, education, energy, and agriculture.

Science and technology:
This year Korea and New Zealand will hold the annual Korea-New Zealand Joint Commission Meeting on Science and Technology. Health technology, agritech, and AI are emerging as key areas of mutual priority for Korea and New Zealand. While Korea and New Zealand are yet to cooperate on issues of space research, Korea has been emerging as a key player in the space industry, developing its own indigenous rockets and contributing to space research and development.

Tourism: 
In 2019, Korea was New Zealand’s seventh largest tourism market in terms of visitor numbers (86,608) and an important source of visitor income. Tourist numbers had risen steeply in the last several years but were hit hard by the COVID-19 border restrictions. Air New Zealand’s announcement of a pause in direct flights from April 2024 and Korean Air’s reduction in number of flights per week will likely have further impacts on these numbers.

Education:
Korea was New Zealand’s third largest education market for international students, according to 2022 enrolment data. In the aftermath of COVID-19, New Zealand education providers have seen a revitalisation of student numbers. The school sector (primary and secondary) remains the most popular with Korean students, with 965 Koreans studying in 2022, although still significantly lower than the 2,590 in 2019. The tertiary sector is the second most popular with 515 students in 2022 compared to 545 in 2019. The English language sector has seen the most significant hit, falling from 2,159 in 2019 to 150 in 2022. New Zealand education remains competitive in Korea, particularly in primary and secondary education, with numbers slowly but steadily rising and returning to pre-COVID-19 levels.

Energy: 
Korea is seeking to dramatically phase down coal-fired power generation and raise nuclear and renewable energy. Importation of green hydrogen is a key strategy for their low-carbon transition, but fossil fuels will likely remain a large part of Korea’s energy reliance in the near future. Clean energy supply is one of Korea’s main challenges, so it is looking to likeminded partners (like New Zealand) as a source of this. The Korean Embassy hosted a Smart Collaboration Forum in October 2023 to foster discussions on cooperation between New Zealand and Korea on our respective green transitions.

Agriculture: 
Uniquely, our FTA is the only one for both New Zealand and Korea that has a standalone chapter mandating agricultural cooperation. Through this cooperation arrangement, Korean officials and students conduct yearly exchanges to New Zealand to receive training, conduct technical cooperation activities, and learn from our systems and processes relating to agricultural, forestry, and fisheries management (for example biosecurity surveillance, pest risk analysis, import risk analysis).

This year will provide several opportunities to continue improving the trade and economic relationship, through bilateral engagement (KNZFTA Joint Commission, Joint Economic Consultations) and collaboration in regional and multilateral fora. As our fifth largest trading partner and a top fifteen global economy, Korea has been a successful and significant partner to New Zealand and continues to hold significant potential and opportunity to advance our trade and economic interests.

Part 2 is here.