By Yoon Ja-young
With research institutes and global investment banks lowering their economic growth outlook for Korea to the mid 2 percent range this year, many economists believe the sluggish growth is not temporary. A survey showed that seven out of 10 experts think Korea has already entered a period of low growth.
In a recent Federation of Korean Industries (FKI) survey of 61 researchers and professors, 70.5 percent said Korea has entered a long-term low growth period, while 26.2 percent said the nation is likely to fall into a low-growth trap soon.
The survey comes following the lowering of economic growth forecasts by a number of research institutes. LG Economic Research Institute slashed its outlook to 2.4 percent from 2.5 percent, while Hyundai Research Institute lowered its forecast to 2.5 percent from 2.8 percent. The Korea Institute of Finance cut its forecast to 2.6 percent from 3 percent, and the International Monetary Fund suggested 2.7 percent as the growth outlook for Korea, compared with its previous forecast of 3.2 percent.
When asked why Korea is facing slower growth, 78.7 percent cited the weakening of economic fundamentals. Those who answered that low-growth is a natural consequence of a maturing economy totaled 16.4 percent, while 4.9 percent said that low-growth is a temporary phenomenon following the global economic slowdown.
The economists cited a delay of systemic reform as the biggest crisis the country is facing, with 44.3 percent pointing to this as a serious problem. One out of four experts felt that the narrowing gap between Korea and China in corporate competitiveness was a risk, while 10 percent each considered the imbalance in income and sluggish domestic consumption as problems.
From the business perspective, the experts cited the lack of new industrial development or core technology as threats.
While the country is facing structural and long-term problems, the government seems to be focusing on short-term remedies, the economists point out. When asked if the economy is likely to recover its previous growth with a global economic turnaround, 90.2 percent were pessimistic. They were also negative about the government’s supplementary budget and measures to boost domestic consumption. Nine out of 10 economists said the measures were temporary rather than timely or innovative. Their advice is that the government should focus on creating new industries and jobs and push for structural reform.
“There are only eight months left for the government to overhaul the nation’s economic fundamentals. Short term remedies such as a key rate cut or expansionary fiscal spending are not enough,” said Song Won-keun, head of economic research at the FKI.