Korean Economy Underperforms Global Average
By Lee Hyo-sik
Staff Reporter
The Korean economy has posted lackluster performance during the last four years under Roh Moo-hyun Administration and lagged behind the rest of the world as it lost growth potential.
Analysts say the economy has seen its growth potential weakening since the 1997-98 Asian financial crisis as domestic consumption and corporate investment have remained stagnant.
From 1987 to 1996, Korea’s gross domestic product (GDP), the total value of goods and services produced in the country, grew by an average 8.4 percent, compared with the world’s average 3.3 percent. But for the past decade, the economy grew 4.4 percent per year on average, similar to the average global economic growth rate of 4.1 percent.
In particularly, its GDP growth has remained below the global average for the past four consecutive years. Even though the economy expanded at a relatively high 5 percent last year, the global economy grew at a faster pace at 5.4 percent.
``Korea has in fact under-performed, compared with other nations, over the past few years and its economic performance has been below its growth potential,’’ said Lim Ji-won, a senior economist at JP Morgan Korea. ``The current administration’s policies to put greater emphasis on wealth redistribution through the expansion of welfare and social security-related programs have created adverse effects on the economy and increased the national debt.’’
She also said a series of government anti-speculation measures have negatively affected the local construction industry and government’s deregulation drive has lost its momentum over the years, failing to attract more foreign investment and encourage domestic firms to make fresh investment.
``To help the economy expand above its growth potential, the government should make every effort to ease regulations on the financial and services sectors, help revive the construction industry and prevent the record-high household debts from destabilizing the financial market,’’ Kim noted.
Households can ill-afford to expand spending as their disposal income growth slowed to an average 5 percent between 1997 and 2006, down from an average of 15 percent the previous decade.
Shin Min-young, an economist at LG Economic Research Institute, said, ``Korea has not, and will not grow at the pace it did in the 1980s and early 90s, because the economy has matured. Also, China and other emerging economies have posted robust growth, pushing up the overall expansion of the world economy.’’
Shin said Korea’s growth potential has weakened, affected by a host of internal and external negatives, including a strong won against the dollar and high international crude oil prices. He added that the country should find next generation growth engines and cope with the rapid population aging and low birthrate to secure a future workforce and increase productivity.