By Lee Hyo-sik
Staff Reporter
The Korean economy has hit bottom and is laying the foundation for a substantial rebound, the new head of the state-funded Korea Development Institute (KDI) said.
Hyun Oh-seok, a former professor at the Korea Advanced Institute of Science and Technology (KAIST) Business School, said Wednesday that the world's 13th largest economy will draw a V-shaped or U-shaped recovery path, rather than an L-shaped one, over the next few years.
``It seems that the economy is accumulating upward momentum for a genuine recovery. It will likely begin heading upward in the second half of the year, or at least economic indices indicate that's the case. There is a strong possibility that we will witness a full-scale rebound from early next year,'' Hyun said. On Monday, he replaced Hyun Jung-taik, who finished his three-year term last October.
His remarks indicate he thinks the economy will experience a short-to-mid term downturn, rather than a prolonged recession, before improving.
This is considered a more optimistic viewpoint than that of Finance Minister Yoon Jeung-hyun and other policymakers about Asia's fourth largest economy, which has been hit hard by plunging sales at home and abroad in the wake of the global credit crunch.
On the same day, Yoon told a Seoul forum that it will take longer for Korea to recover economically than it did a decade ago when the nation grappled with the Asian financial crisis. ``With the entire world suffering from a recession, it will be a slower and longer road to economic recovery than the one after the financial market meltdown 11 years ago,'' Yoon said.
Touching on the planned 28.9 trillion won `super' supplementary budget, Hyun said gross domestic product (GDP) could expand this year from a year earlier, stressing market participants should not be overly pessimistic about the economy.
``More fiscal spending will boost domestic demand and create more jobs. Consumers will spend more on goods and services, making businesses expand investments and hire more workers. The financial sector seems to have regained market confidence and shown signs of normalizing, which will help facilitate a rebound in the real economy,'' the KDI head said.
The finance ministry expected the additional spending coupled with deregulation and more corporate investments to boost GDP by 2 percentage points and create 550,000 new jobs this year. The government projected that the GDP will shrink 2 percent this year, but with the extra budget, the economy is forecast to post zero growth.
But Hyun then said it will take some time for the financial market to resume its main role of financing economic activities, adding that until then, the government should pump money into the sagging economy.
``Rather than focusing on the amount of fiscal spending, we should place top priority on the timing and efficiency of the expenditure. Now is the time for the government to spend more than it earns. Once the economy recovers, then it should balance revenue and spending,'' he stressed.