“(The government’s plan) should help boost domestic consumption, if successfully implemented, it will improve the structure and balance of the economy in the medium term,” Louis Kuijs, chief economist for Korea and China at RBS, said during a press meeting in Seoul on Wednesday.
Like many other Asian economies, Korea faces some structural problems weighing down domestic consumption, such as stifled household income growth and high household debt.
|Louis Kuijs, chief economist for Korea and China at RBS. (RBS)|
“Those can only be resolved through structural reforms,” said Kuijs, who is based in Hong Kong.
President Park announced the three-year plan on Feb. 25, the first anniversary of her inauguration.
It aims to return Korea’s potential economic growth rate to over 4 percent, achieve an employment rate of 70 percent and lay the foundation to boost the country’s gross domestic product.
The mid-term plan also includes overhauling public organizations to tackle mounting debt problems, and boosting domestic demand in order to cut the country’s heavy dependence on exports.
RBS has highlighted that without such structural reforms, the Asian region, including Korea, will not be able to sustain pre-global financial crisis growth rates.
The bank said Korea’s growth outlook remains positive as growth in of China, the country’s top trade partner, will remain above 7 to 7.5 percent and global recovery is on track.
Still, concerns remain, in particular, over the signs of China’s economic growth slowing down and the possible effects it may bring on the export-driven Korea’s economy.
But RBS predicted that the country’s economy would grow at a steady 3.8 percent in 2014, up from 2.7 percent in 2013, in line with the Bank of Korea’s earlier prediction.
“We think the underlying trend for Korea’s exports remains favorable. In spite of the won’s appreciation in 2013, the country’s manufacturing sector remains competitive and its export growth has done well, compared to its Asian peers such as Japan … and Taiwan,” Kuijs added.
By Oh Kyu-wook (firstname.lastname@example.org)