Lee Jae Myung Administration in its second year must break the low-growth trap

 

President Lee Jae Myung speaks during a Cabinet meeting held at Sejong Hall of the Blue House in Seoul on Dec. 30, 2025. [JOINT PRESS CORPS]

 
The start of 2026, the Year of the Horse, should mark a year of renewed momentum and forward movement for Korea. Instead, much of last year was consumed by political turmoil that sapped the nation’s capacity to focus on long-term competitiveness. While Korea remained mired in confrontation, major rivals moved swiftly. The United States accelerated its drive to rebuild manufacturing. China, now the world’s largest auto market, narrowed the gap in semiconductor technology. Japan also pushed ahead with efforts to revive its economy. The contrast with Korea, where economic priorities were sidelined by political conflict, is stark.
 
At first glance, the domestic picture appears resilient. The Kospi has surpassed 4,000 for the first time and exports have exceeded $700 billion. A closer look, however, reveals structural fragility. The weak won has exposed vulnerabilities in economic fundamentals and has complicated inflation management. Surging housing prices have pushed home ownership further out of reach for ordinary households. External competitiveness is also under strain. Many of Korea’s core industries are being chased down by Chinese rivals, while expanded investment in the United States under tariff pressure has fueled concerns about industrial hollowing. Even the long-touted semiconductor edge is eroding as China gains market share.
 
Korea has little room left to retreat. The second year of a presidency is widely seen as a golden window for reform. In November last year, President Lee Jae Myung laid out plans for structural reform across six areas — regulation, finance, the public sector, pensions, education and labor — declaring that 2026 would mark the start of a national transformation. That pledge must translate into tangible results this year. If Korea remains trapped in growth of around 1 percent, as it has since 2023, the gap with the United States, growing at roughly 3 percent, and China, near 5 percent, may become irreparable.
 

Related Article

• President Lee calls for unity, inclusiveness as controversy rages over conservative Cabinet pick

• Presidential office to formally return to Blue House at midnight Sunday

• Lee works at presidential office for last time before officially returning to Blue House

• Cabinet approves bill to raise tax on corporate income to 25%

 
The lag in advanced technology, particularly artificial intelligence, is equally concerning. The United States is bringing fully autonomous driving closer to reality, while China is emerging as a leader in humanoid robotics. Korea, by contrast, has struggled to foster innovation for more than a decade amid political strife and excessive regulation. The rise of Coupang as a retail powerhouse was aided in part by outdated rules such as mandatory hypermarket closures. Recent revisions to the labor union law, often called the "Yellow Envelope Bill," risk adding another layer of uncertainty for businesses. The government should establish clearer bargaining standards to reduce managerial risk.
 
Fiscal policy is another area of concern. Government debt is projected to reach 1,413 trillion won ($975.6 million) by the year’s end, pushing the debt-to-GDP ratio beyond 50 percent. Repeated reliance on cash handouts, including large-scale consumption vouchers, has fed a sense of fiscal complacency. With local elections scheduled for June, another round of spending justified as support for livelihoods could push public finances toward a point of no return.
 
Breaking free from the low-growth trap requires bold structural reform and, above all, political stability. The National Assembly should swiftly conclude follow-up measures on judicial reforms that have fueled partisan confrontation, including disputes over the future of the prosecution. Amid intensifying U.S.-China rivalry, diplomatic caution is essential, as is coherence within the government on North Korea policy. Above all, President Lee must govern with the resolve that this year represents a final opportunity to restore the nation’s economic trajectory. The moment calls not for words but for decisive action.


This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.