Government policymakers have expressed confidence that the Korean economy will easily see more than 3 percent growth this year following an estimated 3.2 percent expansion last year.
They may not be overly confident, especially given the recovering world economy that will continue to bolster the country’s exports. The Organization for Economic Cooperation and Development recently revised up its global growth outlook for 2018 to 3.7 percent from its previous estimate of 3.6 percent in June.
There still remains many downside risks posed from home and abroad, which may hamper Asia’s fourth-largest economy from being put on track to long-term, stable growth, economists here say.
If the 2018 growth rate will be in the range targeted by the Ministry of Strategy and Finance, it will mark the first time Korea’s gross domestic product has expanded more than 3 percent in real terms for two consecutive years since 2010-2011.
President Moon Jae-in’s administration has vowed to push for income-led growth in tandem with innovation-driven growth, along with measures to enhance economic fairness. Moon and his aides say shifting to a new paradigm of “people-oriented” growth is needed to sustain growth and improve the quality of life.
But critics raise doubts that the policy directions pursued by the government, which they say lack clarity and coherence, will prove effective in spurring growth.
“The (Korean) economy may manage to grow about 3 percent this year on the back of some booming sectors,” said Sung Tae-yoon, a professor of economics at Yonsei University.
“But it remains uncertain whether and how companies can be induced to increase investment and create more jobs,” he said.
Pro-labor and anti-business measures taken since Moon took office in May, including hikes in the minimum wage and maximum corporate tax rate, are set to impose heavier burdens on companies this year and beyond.
Despite its emphasis on innovation-driven growth, the Moon administration has dragged its feet on carrying out regulatory reforms across the board.
Amid the deteriorating business environment, local companies remain reluctant to draw up plans to increase investment and employment.
Policymakers forecast that the on-year increase in the number of employees in the country will reach 320,000 in 2018, the same as the estimated figure for last year.
Excluding more than 50,000 jobs to be created in the public sector this year, the number of new employees will drop significantly from the 2017 record.
Choi Bae-geun, a professor of economics at Konkuk University, said boosting the growth rate by 0.2-0.3 percentage points would have little meaning if it didn’t help ease or settle the unemployment problem.
In recent months, youth unemployment has continued to hover around the highest level since the late-1990s foreign exchange crisis, embarrassing the Moon administration, which has pledged to prioritize job creation.
The estimated 3.2 percent expansion of the Korean economy last year was propelled mainly by an increase in exports and investments.
According to government data, the country’s outbound shipments surged 15.8 percent from a year earlier to reach an all-time high of $573.9 billion in 2017.
On-year increases in facility and construction investments last year are estimated at 14.1 percent and 7.6 percent, respectively.
Private consumption last year is estimated to record a modest increase of 2.4 percent.
The government’s growth target for this year, set in the 3 percent range not at a specific number, is based on the assumption exports will grow at a slower pace of 4 percent partly due to the base effect and growth in private consumption will be slightly up to 2.8 percent as measures to increase wages and welfare benefits are implemented.
On-year increases in facility and construction investments are projected to decelerate to 3.3 percent and 0.8 percent, respectively, as factory operating rates are expected to fall and government infrastructure spending is planned to decrease.
Critics note, however, that even such tepid forecasts may prove overly optimistic.
A possible slowdown in global demand for semiconductors, which have propelled the country’s exports in recent years, could result in further reducing its overall outbound shipments and facility investments.
Rising trade protectionism around the globe could also dampen Korea’s exports, with its key manufacturing industries having difficulties staying competitive in overseas markets.
Burdens from mounting household debt and additional interest rate hikes might offset income increases to weigh down private consumption.
A geopolitical tension stemming from North Korea’s nuclear and missile development programs could pose a serious risk to the economy.
Ju Won, an analyst at the Hyundai Research Institute, a private think tank, raised a question about the possibility the economy will grow more than 3 percent in 2018, noting investment, consumption and employment will remain far more sluggish than last year.
Growth forecasts for this year by the HRI and other private research institutes range from 2.5 percent to 2.7 percent, far below the government-set target. The Bank of Korea predicts the Korean economy will grow 2.9 percent in 2018.
The Moon administration has said growth itself cannot be a goal but should serve as a foundation for improving the quality of life, particularly as the country’s gross national income per capita is expected to surpass $30,000 for the first time this year.
Economists indicate its economic initiatives still need to be coupled with sweeping regulatory reforms to encourage corporate activity and create more jobs.
“It is needed to nurture new industries and push for corporate restructuring and labor market reforms from a long-term viewpoint,” said Sung.
By Kim Kyung-ho (firstname.lastname@example.org