Government to anchor second-half growth strategy on youth jobs, AI and structural reform

The government is drawing up a second-half economic growth strategy centered on countering the triple threat of high inflation, a high exchange rate and high interest rates — the so-called "three highs" — while also targeting a recovery in youth employment. The plan is expected to go beyond short-term stabilization to include measures for nurturing the AI industry and pursuing structural reforms aimed at lifting the country's long-term growth potential.

Government officials say the administration is preparing to unveil the second-half economic growth strategy by mid-July. The package is intended as a comprehensive set of measures to lay the groundwork for second-half growth, amid rising uncertainty in prices, the exchange rate and financial markets following a renewed escalation of tensions in the Middle East.

Addressing the three highs is the central task. The government plans to roll out measures targeting the high exchange rate and high interest rates in sequence, following the 1 trillion won ($647 million) summer price-stabilization package it announced June 26.

The high-exchange-rate measures are expected to include expanded financial support for companies and small and medium-sized enterprises burdened by higher raw material import costs as the won-dollar rate has risen. Strengthening loan and guarantee support to cushion the impact of exchange rate swings is under review.

The high-interest-rate measures are expected to focus on supporting ordinary households, vulnerable borrowers and small business owners carrying heavy debt-servicing burdens.

Restoring youth employment is another pillar of the strategy. The government plans to assess conditions in struggling sectors such as manufacturing and construction, with a particular focus on young workers, and announce sector-specific measures that will include a youth job recovery plan.

Recent employment data paint a difficult picture. The number of employed people fell by 40,000 in May compared with the same month last year, turning negative for the first time in one year and five months, while manufacturing employment dropped by 140,000. Youth employment also recorded its steepest decline since 2021, underscoring the breadth of the labor market slowdown.

Alongside the short-term response, the government is strengthening its medium- to long-term growth strategy. The plan envisions securing future growth engines by fostering advanced industries centered on AI, driving AI transformation in manufacturing and advancing domestically developed AI capabilities.

Balanced regional growth is also a key priority. The economic growth strategy is expected to include plans to redesign fiscal and tax support systems with a focus on local governments and to cultivate regional growth hubs across different zones of the country.

The strategy will also address structural reform challenges, including managing the industrial and employment shifts driven by the spread of AI, easing polarization, overhauling the basic pension system, and adjusting, merging or consolidating public institutions. A plan to integrate state-owned power generation companies is also reportedly under consideration.

The government intends to maintain an active macroeconomic policy stance, respond preemptively to domestic and external uncertainties, and pursue economic recovery and expanded growth potential at the same time. With the prospect of improved tax revenues on the back of a semiconductor boom growing, whether to draw up a supplementary budget has also emerged as a policy variable.