Published : 2013-01-21 18:55
Updated : 2013-01-21 18:55
Economic planners and analysts have put forward a series of forecasts painting a gloomy picture of the country’s economy, which has already lost steam in recent years.
In its report last month, the Ministry of Strategy and Finance predicted the economy would grow by 3 percent this year, following an estimated 2.1 percent in 2012 and 3.6 percent in 2011. During a policy briefing to transition committee members this month, ministry officials expressed concerns that this year’s growth rate might fall further below the target. Days before, the Bank of Korea revised down its growth outlook for 2013 to 2.8 percent from 3.2 percent, citing the likelihood of facility investment and exports remaining weaker than expected amid a prolonged slowdown in the global economy.
Many experts particularly take note of the possibility that the economy will expand more slowly than its potential growth rate, which is estimated at 3.7 percent, for three consecutive years. It may point to the low growth trend setting in on Asia’s fourth-largest economy.
What is further worrisome is that Korea’s growth potential, which means the possible output of an economy that does not create inflation, is projected to continue to decline for years to come.
A local research institute warned at a seminar last week that the country’s potential growth rate would fall to 2.06 percent in the 2020s and further to 1.77 percent by the 2030s. Citing the expected shrinkage of its working-age population, the Organization for Economic Cooperation and Development forecast last year that Korea would see the rate plunge to 1 percent by 2031, the lowest among the 34 OECD member states except for Luxembourg.
As a matter of course, this alarming outlook is leading to calls for the incoming administration to put policy priority on boosting the country’s long-term growth potential rather than being preoccupied with a short-term stimulus package. The research institute suggested the various effects that increasing the potential growth rate would bring about. A 1 percent rise in the rate would result in creating up to 360,000 jobs over five years from 2013 and collecting an additional 9.4 trillion won ($8.8 billion) in annual tax revenue during the cited period.
As indicated by campaign pledges by President-elect Park Geun-hye, who will be inaugurated on Feb. 25, her administration is expected to focus on redressing a growing imbalance between large conglomerates and small businesses. It seems to be the right direction for Park’s aides to work out measures to strengthen support for small and medium-sized enterprises, including venture startups and boost the service sector. Such efforts will help improve the overall productivity of the national economy and increase employment.
The policy envisioned by Park and her economic staff would be relevant only when it serves to expand, not shrink, the long-term growth potential. The incoming administration should strike a delicate balance between curbing ever-growing influence of conglomerates and keeping the growth engine alive. The SMEs and service sectors are not exceptional in needing more competition and deregulation.