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Finance Minister
Yoon Jeung-hyun |
By Lee Hyo-sik
Staff Reporter
The Organization of Economic Cooperation and Development (OECD) said Thursday that the Korean economy will expand by 0.1 percent this year, revising upward from its earlier forecast of a 2.2 percent contraction made in June.
The OECD became the first major international financial institution that put the country's 2009 growth rate in positive territory, a move that will likely encourage the World Bank and the International Monetary Fund (IMF) to do the same.
The Paris-based organization also raised its 2010 growth projection for Asia's fourth largest economy to 4.4 percent from the previous 3.5 percent, citing the nation's strong economic recovery led by exports and fiscal stimulus. From 2011 through 2017, the Korean economy is projected to grow at an annual 4.5 percent.
``Following the severe contraction in late 2008, Korea has achieved one of the earliest and strongest recoveries in the OECD area, led by exports and expansionary fiscal policy. While the impact of fiscal stimulus will fade in 2010, a sustained pick-up in exports is projected to help boost output growth to 4.4 percent in 2010 and 4.2 percent in 2011, with a rebound in domestic demand and a marked fall in unemployment,'' it said.
The OECD also said as the recovery takes hold, the growth of government spending should be scaled back to bring the budget into balance in line with the mid-term fiscal management plan.
``Other exceptional measures to stabilize the economy, such as expanded support to small- and medium-sized enterprises should be phased out. Structural reforms to enhance productivity, notably in the non-manufacturing sector, are needed to sustain growth over the medium term,'' it stressed.
The organization then said as exports approach pre-crisis levels the impact of fiscal stimulus fades and the maintain inflation in the central bank's target zone of 2.5 percent to 3.5 percent is likely to require a hike in the policy interest rate. ``But the expansion will be sustained, helped by continued export growth. It will lead to faster growth in business investment and employment.''
But a number of downside risks remain high, it said. ``As export-led expansion is vulnerable to developments in the global economy. If world trade were to falter or there were a large and rapid appreciation of the won, Korea could be at risk of a double-dip recession. On the domestic side, the heavily indebted household sector may use income gains to improve balance sheets rather than increase consumption, thereby slowing the recovery.''
The OECD announcement came hours after the nation's top economic policymaker said that the Korean economy will likely expand in 2010 at a faster clip than initially thought, citing brisk exports and steadily recovering private consumption and corporate investment.
In a meeting with heads of major state-run and private economic research institutes, Strategy and Finance Minister Yoon Jeung-hyun said the 2010 growth rate will be higher than the government's earlier forecast of 4 percent.
``We expect the economy to grow next year at a faster rate than a previously-estimated 4 percent,'' Yoon said, hinting at revising upward the government's official 2010 growth outlook in the near future.
The minister said economic conditions continue to improve at a steadier pace than initially expected. ``Korea's gross domestic product (GDP) grew at a faster-than-expected clip of 2.9 percent in the third quarter from the previous three months. Things are rapidly returning to the pre-crisis level. Many international institutions are surprised by our performance.''
Additionally, Yoon and other policymakers have said that Asia's fourth largest economy may expand this year if conditions continue to improve at the current trend for the remainder of the year. GDP was initially expected to shrink by as much as 4 percent this year but business conditions here have improved sharply on the easing of the global financial market turmoil and growing overseas demand for Korean-made goods.
In early October, the International Monetary Fund (IMF) raised its outlook for Korea, saying it will contract 1 percent this year from 2008, up from its earlier forecast of a 3-percent decline made in July. It also revised the nation's 2010 growth projection to 3.6 percent from the previous 2.5 percent, saying South Korea will benefit significantly from the upcoming global economic recovery
However, minister Yoon cautioned against outright optimism, saying Korea should remain vigilant and make every effort to effectively cope with lingering downside risks, including the tight labor market, and prepare for a post-crisis era.
``What we do now is crucial to overcoming the economic difficulty and preparing for the post-crisis period. We need to think hard over how to get through the current hardship and maintain an upward momentum in the future,'' he stressed.
Yoon said even though some macroeconomic indicators have improved, employment conditions still remain in slump, which makes it difficult for middle-and low-income households to benefit from the ongoing rebound.
``Additionally, crude oil and other commodity prices could resume an ascent any time soon. With a range of remaining downside risks, we need to join hands together to facilitate the corporate restructuring and overhaul the economic structure, transforming Korea into an advanced economy,'' the minister stressed.
leehs@koreatimes.co.kr
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