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| Strategy and Finance Minister Kim Dong-yeon speaks during a press conference at the Sejong Government Complex, Monday. Although Korea chalked up the second-highest economic growth rate in the third quarter among OECD members, Kim worried the effect might be limited to big exporters. / Courtesy of the Ministry of Strategy and Finance |
By Yoon Ja-young
Korea ranked second-highest in terms of third-quarter economic growth among Organization for Economic Cooperation and Development (OECD) member countries.
While its economic growth rate is expected to surpass 3 percent this year, however, the outlook is uncertain for next year due to discrepancy between exports and domestic demand.
According to the OCED, its 22 member countries whose data were available saw their economies grow on average 0.6 percent in the third quarter, falling from 0.8 percent in the second quarter.
Korea's economy, meanwhile, grew 1.4 percent in the third quarter, following Latvia which topped the list with 1.5 percent. Latvia is a small economy that joined the OECD last year.
Korea owes its good performance to an increase in exports, which expanded by 6.1 percent from the previous quarter. This was the highest quarterly rise in more than six years.
The government and major economic think tanks expect Korea's economic growth rate to surpass 3 percent this year, on the boom in exports.
"The economy has been showing stable signs, and the growth rate has become certain to surpass 3 percent this year. External risks have been controlled, with a Korea-Canada currency swap following the renewed Korea-China currency swap," Strategy and Finance Minister Kim Dong-yeon said in a press meeting Monday.
For next year, however, many experts are cautious about growth staying above 3 percent while the government expects the number will be attainable.
Analysts point to the discrepancy between exports and domestic demand.
"While expansion of international trade on the global economic recovery will increase demand for Korean products, the trickle-down effect on domestic market industries will be negligible," said Ju Won, a director at the Hyundai Research Institute.
"If one only focuses on good macroeconomic indices such as the economic growth rate and current account surplus, economic policy may overlook the poor economic conditions perceived by the people."
The finance minister also pointed to the gap between good indices and chronic problems.
"While the macroeconomic indices are stable, there remain problems of dualism and the widening gap in terms of distribution despite an increase in income. The government aims at qualitative growth where all can share the fruits of the economy," Kim said.
Ju also showed concern over the "hollowing-out of the economy."
"The ratio of overseas investment, which took only 10 percent of domestic facility investment in the early 2000s, now takes over 30 percent. With wages rising in the labor market due to issues like the minimum wage hike and transition of irregular workers to regular workers as well as anti-corporate sentiment expanding in society, businesses are likely to accelerate overseas investment."
He pointed out that not only manufacturing but also services industries are increasing overseas investment. "This could lead to the hollowing-out of the economy since service industries have huge significance in terms of domestic demand and employment."
The LG Economic Research Institute also showed concern that weakening investment will hinder growth.
"Investment makes up an especially huge part of growth in Korea. From the latter half of the year, however, investment is losing steam. Construction spending will start to fall next year while facility investment will also slow as it has been limited to semiconductors."
Despite the government's income-led economic growth plan which aims to boost consumption, the institute noted an increase in consumption will not make up for all the negative impact of slowing down investment.
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