President Roh Moo-Hyun said yesterday that South Korea's economy faces the daunting challenge of resolving structural problems represented by a growing imbalance between industrial sectors.
In a New Year speech to the nation, he said the economy grew almost five percent and exports jumped 30 percent last year but at the same time "an increasing number of people are complaining about economic pain."
Analysts said the rates appear healthy but disguise real human misery.
Growth was entirely due to exports and monopolized by a few big exporting groups while the domestic market composed of consumers and small and mid-sized firms was suffering badly, they said.
"Especially, small and mid-sized firms, self-employed people [such as shop keepers and restaurant operators], non-union part-time workers and merchants at traditional markets are suffering great pain," Roh said.
"There is even the talk of the middle class crumbling," he said.
Although there is no official definition of the middle class, about two thirds of the population believe they belong to this bracket, according to surveys.
Roh noted that South Korea has had to rely on ever-increasing imports of parts and components to increase exports as its own suppliers are weak.
Except for the semiconductor segment, domestic investment in key industries including electronics, chemicals, automobiles, steel and machinery has almost come to a halt because of low returns, analysts said.
Exports of high-tech products by large companies have increased greatly but traditional businesses supplying daily necessities are losing out to rivals in China and Southeast Asian countries, Roh said.
In contrast with a limited number of blue chip firms whose net profit surpassed US$1 billion last year, many other businesses in less competitive sectors have difficulties even paying interest on their debts, he said.
The president said that the ratio of self-employed people in the nation is about three times as high as those in advanced countries and these people are especially susceptible to an economic slowdown.
Roh said the economy was currently in a trough but would bounce back to a growth path again in the second half of this year, adding the government planned to spend more in the first six months of the year to create an atmosphere more conducive to private investment.
He said the government would also give priority to creating new jobs this year by helping create thousands of innovation-oriented small and mid-sized businesses, and giving job training to laid-off workers.
The unemployment rate increased to 3.7 percent in December from 3.3 percent a month earlier, government statistics showed.