By Lee Hyo-sik
Staff Reporter
The government has targeted a growth rate of around 6 percent this year through measures including corporate tax cuts and deregulation despite the slowing global economy.
The target rate is above the 4.8 percent forecast made by the previous administration and in line with President Lee Myung-bak's campaign pledge of realizing 7 percent growth over five years.
But the target is seen as ambitious amid rising fears of a recession in the U.S., the nation's second largest export market, and a looming global credit crunch.
For the first time in a decade, the nation will see a deficit in its current account ― an estimated $7 billion shortfall due to surging prices in oil and other raw materials. Last year South Korea recorded a $5.9 billion surplus in the broadest measure of external balances, including trade, services and certain government-to-government transfers.
It seeks to create 350,000 new jobs, down from Lee's campaign pledge of 600,000 and keep consumer prices under 3.3 percent.
In a report to President Lee, Strategy and Finance Minister Kang Man-soo said he plans to cut corporate tax rates to 11-22 percent next year and further to 10-20 percent by 2013, down from the current 13-25 percent depending on the size of business.
To achieve such macroeconomic goals, the government will help boost corporate investment and consumer spending here through deregulation and tax cuts, as exports, Korea's main engine of growth, are projected to slow on high oil prices, the U.S. recession and other external negatives.
The government will also expand investment in research and development (R&D) and nurture new growth engines for a more sustainable economic growth.
However, analysts say it will be difficult for the government to accomplish its 6 percent target and other macroeconomic goals because of worsening external and internal conditions
LG Economic Research Institute senior economist Song Tae-jung said exports will be unable to maintain the current momentum in the coming months because of a U.S. economic slowdown and its negative ripple effects across the globe.
``On the domestic front, the worsening trade terms and high costs of crude oil and other raw materials are sharply raising prices of goods and services, dampening domestic spending and job generation. We plan to revise down this year's economic projection soon in line with other major economic research institutes at home and abroad,'' he said.
Samsung Economic Research Institute trimmed its growth forecast for this year to 4.7 percent, 0.3 percentage points lower than its previous forecast, citing slowing exports and weakening domestic consumption
The outlook is even gloomier among investment banks, whose forecast averages 4.7 percent. Deutsche Bank gave the most pessimistic outlook, predicting growth at a mere 3.9 percent.