Issue Focus

● This paper examines the impact of the domestic economy and the direction of SOC investment in the future while being exposed to the risk of stagflation due to changes in external conditions such as the Russia-Ukraine War over the domestic economy and the U.S. interest rate hike. ● In the face of the ongoing Russia-Ukraine War, the impact of rising oil and raw material prices on the global economy is increasing, and our economy is also greatly affected. ● Due to the rise in oil prices due to the Russia-Ukraine War, it is expected that Korea’s economic growth rate will decrease and consumer prices will rise. - In 2022, if the international oil price averages $100 per barrel, the economic growth rate will decrease by 0.3%p, the consumer price increase rate will rise by 1.1%p, and the current account will decrease by more than $30 billion. ● The U.S. is planning to raise the interest rate by more than 2%p from the end of last year to the neutral interest rate from the low interest rate due to the high inflation rate. The upward trend of the U.S. interest rate is expected to continue for the time being, and the decrease in economic growth rate and inflation in Korea are also expected to continue due to the U.S. interest rate hike. - It has been analyzed that if the U.S. interest rate rises by 1%p, Korea’s real GDP will decrease by 0.52% for one year, the inflation rate will rise by 0.02%, exports will decrease by 0.74%, and imports will decrease by 0.71%. ● Although consumption in the Korean economy is currently recovering, it is expected that the economy will slow down in the future as consumer sentiment is shrinking and investment and trade balance are on a downward trend. in this situation, the price increase continues. If this trend continues, the possibility of the Korean economy entering stagflation is increasing. ● On the other hand, although Korea’s SOC budget is steadily increasing, it is insufficient to achieve an economic growth rate of 2.5%, and the SOC capital stock considering the size of the economy is also significantly lower than that of France and Germany. -2.9 trillion won is insufficient compared to the appropriate SOC investment to achieve the economic growth rate of 2.5% in 2023. - In 2019, Korea’s SOC capital stock ratio was 25.0%, which is lower than France’s 30.8% and Germany’s 29.5%. - As of 2006, Korea’s road penetration rate per territorial coefficient was 1.51, ranking 29th among all 30 OECD member countries. ● Amid the risk of stagflation, it is necessary to maintain an expansionary fiscal policy stance to prevent a decline in economic growth rate. As such, it is necessary to expand SOC investment.