OECD Cuts Economic Growth Outlook for Korea by 0.9 Percentage Points

By Yoon Ja-young

Staff Reporter

The Organization for Economic Cooperation and Development (OECD) has cut its economic growth outlook for Korea in 2008 by 0.9 percentage points from its estimate made in December last year. It estimated the economy to grow 4.3 percent as it slows down on weak overseas demand and soaring global oil prices.

It explained that facility investment decreased in the first quarter due to growing uncertainties in the global economy. Construction orders also declined on a sluggish housing market.

Consumer price rise will be bigger than the central bank's target of between 2.5 percent and 3.5 percent, it estimated.

The organization, however, estimated the economy to recover to over 5 percent growth next year thanks to export increases and the expansion of the domestic economy. Inflation will also be within the central bank target following the economic slowdown this year, and on stabilizing oil prices.

It pointed out that Korea is highly sensitive to the global surroundings regarding IT and oil prices. IT takes a considerable portion of Korea's gross domestic production (GDP) and it totally depends on oil imports.

The OECD expressed concern on the high ratio of household debt. Korea's household debt ratio, or the ratio of household debt to disposable income, rapidly rose to 150 percent as of 2007, from mere 85 percent in 1998.

The organization, however, was positive about the business-friendly policies implemented by the new administration. President Lee Myung-bak has repeatedly said that he will push for deregulation and the expansion of free trade agreements (FTA), and encourage foreign direct investment (FDI).

It advised that deregulation policies should continue to lure FDI, which has been slowing recently. It added that tax cuts, another main policy of the Lee administration, should be accompanied by cuts in government spending, otherwise, it could hurt fiscal soundness.

The organization estimated that the economy of its member countries would grow 1.8 percent on average this year, down 0.5 percentage points from the previous estimate released in December last year. It explained that financial market trouble following the U.S. subprime mortgage woes, a sluggish housing market, and high inflationary pressure were behind the downgrade.

chizpizza@koreatimes.co.kr