The Korea Herald

지나쌤

[Editorial] Bracing for low growth

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Published : Oct. 13, 2011 - 20:27

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The administration’s 2012 budget awaiting deliberation at the National Assembly is based on a 4.5 percent growth forecast. Few expect growth will be that high.

At the outset of this year, the administration said it expected growth would be at 5 percent next year, but the official growth outlook has since declined to 4.5 percent. Yet again, it may have to be readjusted downward, given a top economic policymaker’s recent remarks.

In his testimony during a recent parliamentary inspection, Bahk Jae-wan, minister of strategy and finance, acknowledged that the 4.5 percent growth target might not be attainable. He added that more accurate data would be available in December.

Much more pessimistic are international investment banks and domestic think tanks. The Switzerland-based global investment bank UBS believes Korea’s growth would be 2.8 percent next year. Should growth fall to that level, economic experts say the nation might have to brace for a contraction during the first half.

Two domestic economic research institutes, Samsung and LG, are not that pessimistic. Both expect growth will be at 3.6 percent.

The main cause of lower growth will be an anticipated global slump, which will cut overseas demand for Korean-made products. The LG Economic Research Institute expects shipments will increase 7.4 percent during the first half of next year, down from 23.7 percent during the first half of this year.

The administration does not have much room for maneuver when it comes to boosting growth without stoking inflation. It cannot spend its way out as it is committed to balancing the budget by 2013. Nor it can boost domestic demand because households are already leveraged to a dangerous level.

One bright spot amid the gloom is a forecast of stable consumer prices. Samsung expects the consumer price index to fall to 3.4 percent next year, compared with the index that has topped the 4 percent level for the 10th consecutive month this year.

With the next parliamentary and presidential elections scheduled for next year, the administration will undoubtedly be tempted to spur growth and create jobs at the expense of consumer prices. But the last thing an administration in its right mind can afford to do is allow such a lure to get the upper hand and let the inflationary genie out of the bottle.