Value context and insight. lkm@koreatimes.co.kr
Low productivity eats into Korea's growth potential
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By Lee Kyung-min
By Lee Kyung-min
Korea's potential growth will face continued downward pressure due to deteriorating productivity as a result of falling corporate investment following the global financial crisis in 2008, a private think tank said Sunday.
The government should lead with aggressive investment to foster promising businesses for the Fourth Industrial Revolution to boost stagnant growth potential, it added.
According to a report published by the Korea Economic Research Institute (KERI) supervised by the Federation of Korean Industries (FKI), the country's potential growth rate stands at 2.7 percent, but will fall to an average of 2.5 percent for the next four-year period. (2019-2022).
The figure will further drop to 2.3 percent between 2023 and 2030, and is feared to plummet to 1 percent in 2030, it added.
KERI research fellow Lee Seung-suk, who authored the report, said the number could fall far faster unless major improvements are made in business investment.
“The country's economy has been largely driven by robust productivity strengthened by corporate investment, which no longer seems to be the case,” he told The Korea Times.
Asia's fourth-largest economy is set on a far bleaker path for the months to come, given weak domestic consumption.
“Countries like the U.S. and Germany have strong domestic consumption to cushion the shock triggered by a sharp decline in corporate investment. But in Korea, consumer sentiment rarely becomes strong unless it is preceded by major corporate investment,” he said.
Heightened uncertainties involving the U.S.-China trade dispute will continue to pose major downside risks to the country, he added.
“Korea's semiconductor industry is apparently contracting due to softening global demand, and the trade dispute will only hurt our export-reliant economy.”
The biggest issue now is whether the country will be able to boost the growth rate to over 3 percent, or settle for the fast declining numbers in the 2 percent rage, and the outlook is far from rosy, he said.
“I am afraid that the report's projection indicates the country is likely to be trapped in a low-growth low-inflation structure.”
Deregulation as well as measures to incentivize corporate investment are among the most urgent avenues to pursue, he stressed.
“The government and businesses must be selective about which sectors should be fostered following careful consideration and assessment of their growth prospects.”