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No going back... The era of 'de-globalization, big government, and polarization' is coming

As long as this 'post-Corona' era strengthens economic entities' hedges, the government's role, greater potential growth, accelerated decline, worsening income distribution concerns digital economies in transition-related productivity improvements are key.

After the new coronavirus infection (Corona 19), the Bank of Korea determined that it was difficult for economic entities such as households, businesses, and governments to return to previous levels due to environmental and structural changes in domestic and foreign economies. In the post-corona period, it is predicted that globalization will shrink due to de-globalization and digital economy conversion, deepening the labor market polarization, worsening income distribution, and decreasing potential growth rate. It is expected that the era of 'big government' will come as people's expectations for the role of the country rise.

According to a report by the Korea Research Service on June 29th, the report on the changes in economic structure and the impact on our economy since Corona 19, the major environmental changes that will appear in the post-Corona era are 'changes in the behavior of economic subjects,' 'de-globalization,' and 'accelerating the digital economy,'

It is a diagnosis that the de-globalization phenomenon, in which the global supply chain and trade are contracting, is accelerating, and the transition to the digital economy is inevitable due to the activation of non-face-to-face contacts. In order to protect industries and jobs affected by economic hardship in each country, the 'protection and trade' framework is strengthened, and regionalism is likely to spread. It was observed that interest in climate change could increase after a certain degree of departure from the crisis.

It is an analysis that the economic structure will change as the trend of global trade slows due to the tendency of economic actors to evade risks and the expansion of their own preference. The industrial structure is also expected to be reorganized around artificial intelligence (AI), robots, and big data to promote the "smartization" of the manufacturing industry, expand ICT (information and communication technology) services, and focus on low-carbon, eco-friendly and bio-health. It is evaluated that the expansion of ICT product trade such as semiconductors and communication equipment will be able to counter some of the negative effects of de-globalization on trade.

It is a diagnosis that the labor market polarization will intensify. Han said, "The job market-to-job mismatch between new technology and new jobs will increase, and the labor market dual structure will widen as the gap between employment and wages increases between sectors."

According to the analysis, job creation centering on non-face-to-face industries will create various types of jobs such as remote work, platform work, and short-time work, while employment in traditional service industries such as lodging and food and retail and sales will decrease. The weakening of the global value chain (GVC) is bound to undermine manufacturing employment.

In the mid to long term, income distribution is expected to worsen as employment in vulnerable sectors such as low-education jobs, which are not familiar with digital technology, recovers slowly. This means that income inequality can increase as the income of the low-income class becomes poorer and the income of the high-income class increases relatively. It is also concerned that the strengthening of protectionism will weaken the growth engines of emerging countries and stagnant jobs and incomes for the middle and low income groups.

The role of national finance is expected to be stronger. It is predicted that even in the post-corona period, high levels of fiscal expenditure will continue to increase in each country through strengthening social safety nets and investments to transform the digital and low-carbon economy.

It is an analysis that Korea's growth potential is at risk of falling. It is an observation that the long-term unemployment rate will slow down labor input, and the downward trend in potential growth rate will increase as trade continues to contract. If the 'big government' spreads, there is a concern that the investment will be more concentrated in the public sector, which will reduce the overall productivity of the economy.

However, it was also suggested that the increase in productivity following the expansion of the ICT industry could contribute to slowing the rate of decline in the potential growth rate. It is an analysis that if the productivity improvement in the digital economy-related sector is achieved, the ripple effect will reach the whole and escape the stagnation of productivity. Although the trend of low inflation will continue in the future, there is also a forecast that inflation pressures will appear due to weakening GVC and global liquidity leakage. Eun-han Han said, "This crisis will make households who have suffered unemployment and income shocks a stronger risk aversion trend, and the uncertainty in the US-China trade dispute and Corona 19 will also make it difficult for companies to make bold investments. There is great uncertainty, but it is difficult to expect that the behavior of households, businesses, and governments will return to what they were, even if they escaped the pandemic crisis."

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