Korea's 2017 growth outlook cut to 2.6%: OECD

By Yoon Ja-young

The OECD has cut its outlook for Korea’s economic growth in 2017 from 3 percent to 2.6 percent, citing such negatives as the delayed recovery of global trade and political uncertainty.

In the OECD Economic Outlook released Monday, it expected the global economy to grow 3.3 percent next year, slowly picking up from this year’s 2.9 percent growth thanks to fiscal expansion in major countries and stabilizing natural resource prices.

While the United States will mark strong growth on rising wages and improvement in the job market coupled with stimulus measures, expansion of protectionism and a slowdown in China as well as increasing risks in the financial markets will work as negative factors.

The OECD projected Korea’s output growth to edge up to 3 percent in 2018.

“Given Korea’s reliance on export-led growth, a delayed rebound in world trade is the biggest risk to achieving 3 percent output growth. In addition, recent problems in the mobile phone industry could have a temporary adverse impact on demand for Korean products.”

It also cited political uncertainty as a short-term risk, while the impact of restructuring in troubled industries and the recent introduction of an anti-corruption law may be larger than expected.

It also suggested the fiscal framework be upgraded “to provide more scope for short-term flexibility while maintaining a sound fiscal position, as Korea faces the most rapid population aging in the OECD and the cost of possible rapprochement with North Korea.”

While the government has suggested the economy will likely grow 3 percent next year in its June 2016 outlook, economic think tanks have been pessimistic about next year. The Korea Institute for Industrial Economics and Trade (KIET) expects the economy to grow 2.5 percent next year, which is 0.2 percentage points lower than this year’s outlook of 2.7 percent. It explained that construction investments, which have been making up for the loss incurred by sluggish exports, will lose steam.

Private economic think tanks are even gloomier. LG Economic Research Institute, for instance, projected the economy will grow a mere 2.2 percent next year. The Korea Economic Research Institute (KERI) also suggested 2.2 percent as the growth figure for the next year. As the outlook was made ahead of the U.S. presidential election and the outbreak of Korea’s largest-ever political scandal, the economy could be further weighed down.