South Korea should reduce its reliance on the US economy and push to galvanize domestic demand as the world's No. 1 economy is expected to continue its slow growth down the road, a state think tank said Friday.
In a report on the future of the US economy, the Korea Institute for International Economic Policy forecast its annualized average growth rate to hover below 2 percent until 2060 due mainly to its population aging and the slowing pace of technological innovation.
"Since the early 2000s, America's growth potential had been on the skids in keeping with structural changes of the economy," KIEP said. "The 2007-08 financial crisis resulted in accelerating the downturn to some extent."
This photo, taken on Feb. 15, 2017, shows the container terminal of Gwangyang Port on the south coast. (Yonhap)
The mid- and long-term growth path of the US economy thus remains uncertain though it overcame the crisis faster than other advanced countries thanks to a package of monetary easing, fiscal expansion and massive state spending on research and development.
In light of that, South Korea should prepare for the downtick in America's economic growth, which will in turn weaken the global economy, the think tank said.
"South Korea should diversify its export markets and develop high-end goods less susceptible to the business cycle to prevent a slowing US economy from prompting a plunge in overseas shipments," it said. "It should also try to cut its dependency on exports for economic growth by invigorating the domestic market."
The US is South Korea's third-largest export market after China and the European Union. South Korea's shipments to America came to $66.47 billion in 2016, with its imports of US goods reaching $43.22 billion.
KIEP further said South Korea needs to take measures to boost productivity and increase investments in new growth engines as part of efforts to prevent the economy from losing further ground.
"It is important for South Korea to secure the consistency of R&D spending in order to promote its efficiency," it said. "Despite big R&D spending, it has been less effective because of high uncertainty over implementation."
Hit by the slowing global economy, South Korea's exports fell 5.9 percent on-year to $495.5 billion last year, marking a second consecutive year of drop following a 7.9 percent plunge the previous year. Asia's fourth-largest economy grew 2.7 percent in 2016 from a year earlier, compared with a 2.6 percent gain in 2015. (Yonhap)