Macroeconomic Status: South Korea and the USA

Introduction 

The United States and South Korea not only enjoy a close geopolitical relationship but also strong economic ties that span over half a century. An investment that operates in the two nations would, therefore , be viable for a corporation intending to expand globally. Prior to investment, however, it is important to take a portrait of the macroeconomic situation in the two countries using various crucial macroeconomic markers. Among these markers is the Gross Domestic Product (GDP) which measures the total economic output of an economy. The nature and extent of unemployment compliments the GDP assessment as it is able to narrow down and reflect how the GDP impacts the citizenry. Interest rates and inflation are an important measure through which the impact and effect of government policy’s inference into the economy can be assessed. By evaluating these three sets of parameters, it is possible to have a macroeconomic portrait of both the USA and South Korea for better entrepreneurial decision making. 

Gross Domestic Product 

The US has the largest GDP than any other individual nation in the world, and according to Long (2018), the US GDP will continue to appreciate in 2018. Citing estimates made by the International Monetary Fund, the US economy is expected to grow at a rate of 2.7% which is an upward review of an early assessment that placed the economy at 2.3%. The basis given for the proposed increase in GDP includes a general economic growth across the globe and the recent reduction of corporate taxes. However, the International Monetary Fund also argues that the current growth rate may not be sustainable in the long run due to economic inequalities in America. The positive review above is also supported by Baily (2018) which indicates the US stock GDP is showing a solid growth by most parameters. Based on the two sources, it might be possible for the US GDP to break the US$ 20 trillion barriers in 2018. The article by Trading Economics (2018) provides a positive assessment of the South Korean GDP, based on an analysis of the first three months of 2018. According to the analysis presented, the GDP of South Korea reflected consistent growth in each of the first three months of 2018 leading to the conclusion that the GDP will continue to appreciate through the year. When the GDP growth was predicted based in the actual appreciation within the said three months, a tacit figure of 2.8% growth in 2018 was arrived at with a possibility that the same might increase to 2.9%. Based on the above, the GDP of South Korea is not only growing, but also growing at a pace that closely resembles if not emulates that of the US GDP. The US GPD is, however, over ten times larger than that of South Korea. 

Unemployment 

The rise in GDP witnessed in the US can be said to have also trickled down and impacted employment. According to Steakin (2018), the US unemployment rates are at a record low as they stand at 3.4%. The last time the US unemployment rates were this low was in the year 2000. It is worthy of notice that the year 2000 falls before two major events that had a catastrophic impact on the US economy which are the 11 th September 2001 terror attacks and the 2008 Great Recession. In March 2018 alone, 164,000 jobs were added to the market, and the numbers continue to rise. Further, there is a 2.6 increase in the average wages. However, work participation in America is still relatively low at 62%. In South Korea, the level of unemployment is relatively low at 3.8% as at April 2018 but this is not necessarily good news according to Moody's Analytics (2018). The rate of unemployment in South Korea may be declining when compared to March of 2018, but it is also high compared to the beginning of 2018 where it had fallen to below 3.6%. Unemployment in South Korea can thus be said to be low and fluctuating. When combined, unemployment is currently on the decline both on the US and South Korea where it stands at below 4% with the US doing better than South Korea. The low numbers of unemployment are reflective of the fact that the GDP gains for the two countries have an overall effect on the lives of its citizens. 

Inflation and Interest Rates 

Interest rates and inflation enjoy a close but complicated relationship, with interest rates being a means that Central Banks use to control inflation and by extension both GDP and unemployment (Baily, 2018). The rate of inflation in the US , according to the Federal Reserve is appreciating but at a rate that had been anticipated and also acceptable. In the recent meeting of the Federal Reserve, it was indicated that inflation was approaching the 2% mark, mainly buoyed by the expanding economy. It is on this basis that the Federal Reserve members voted unanimously not to increase interest rates according to Borak (2018). However, economic commentators expect the Federal Reserve to increase interest rates in their next meeting to be held in June 2018. Currently, interest rates stand within the rage of 1.5% to 1.75%, having been increased consistently since 2015. In South Korea, according to the Central Bank’s Governor Lee Ju- yeol , the rate of inflation stands below expectations when compared with the rate of economic expansion. Currently, the rate of inflation stands at 1.6%. According to CNBC (2018), the Central Bank of South Korea has maintained interest rates at 1.5%. The Central Bank had anticipated an inflation rate of 1.8% which was revised to 1.7%. Although the value has not been attained, there is a high probability that the interest rates might be increased to increase the rate of inflation. Based on the above, both the US and Korea have maintained a steady rate of inflation that has been rising but to expected levels. Secondly, the interest rates have not been increased in recent times but might be increased to spur a slight increase in inflation. Both markets thus reflect an element of stability that is expected to remain so in the near future. 

Conclusion 

The research above presents both US and South Korea as ideal investment countries in the year 2018 and also as ideal mutual investment destinations due to the similarities in their economic state. The economy of the US may be over ten times larger than that of South Korea but both countries seem to be reflecting the same economic dynamics. The GDP of the two countries is on a steady rise and is expected to rise gradually in the course of 2018. Unemployment is on the decline in both countries although there seems to be some fluctuation in South Korea. Finally, both countries have inflations rates that are slightly lower than would be expected considering their respective growths in GDP which means that the GDP growth is not coming at an inordinate strain to the economy. The two respective governments may not have increased interest rates in 2018 but there is a possibility that they will, but only mildly. The analysis above supports the decision to make a combined investment in the two countries. 

References 

Baily, M. N. (2018, February 16). Trump's formula for growing the U.S. economy-what will work and what won't. Retrieved from https://www.brookings.edu/research/trumps-formula-for-growing-the-u-s-economy-what-will-work-and-what-wont/ 

Borak, D. (2018, May 2). Fed leaves rates unchanged and says inflation is moving higher. Retrieved from http://money.cnn.com/2018/05/02/news/economy/us-interest-rates-may- fomc -meeting/index.html 

CNBC. (2018, February 27). Bank of Korea keeps interest rate steady at 1.5%. Retrieved from https://www.cnbc.com/2018/02/26/bank-of- korea -keeps-interest-rates-unchanged.html 

Long, H. (2018, January 22). U.S. economy to grow 2.7 percent in 2018, boosted by Trump tax overhaul. Retrieved from https://www.washingtonpost.com/news/wonk/wp/2018/01/22/u-s-economy-to-grow-nearly-3-percent-in-2018-because-of-trump-tax-cuts-imf-says/?noredirect=on&utm_term=.4264b7502ab7 

Moody's Analytics. (2018). South Korea - unemployment rate. Retrieved from https://www.economy.com/south-korea/unemployment-rate 

Steakin, W. (2018, May 04). Unemployment rate drops to 17-year low, economy adds 164,000 jobs. Retrieved from https://ijr.com/2018/05/1091791-unemployment-rate-new-low/ 

Trading Economics. (2018). South Korea GDP growth rate | 1960-2018 | Data | Chart | Calendar. Retrieved from https://tradingeconomics.com/south-korea/gdp-growth