Data released this week by the Bank of Korea cast doubts on whether the country’s economy will grow around 4 percent this year as forecast earlier by the central bank and the government.
South Korea saw its real gross domestic product expand 0.3 percent in the July-September period from three months earlier. In August, the BOK said that Asia’s fourth-largest economy could achieve annual growth of 4 percent in 2021, if it grew by at least 0.6 percent on-quarter in the third and fourth quarters of the year.
Korea’s on-quarter GDP growth reached 1.7 percent in the January-March period and 0.6 percent in the following three months.
Releasing its latest data, the BOK remained optimistic that the country would be able to meet the 4 percent growth projection for this year on the back of eased antivirus restrictions to be put in practice next month amid the hastened rollout of vaccinations.
The slowdown in growth in the third quarter was attributable partly to the fallout from the resurge in coronavirus cases and disruptions in global supply chains.
But the continuous deceleration in the quarterly GDP growth rate may be seen to point to the deterioration of structural problems faced by Korea’s economy.
Particularly worrying is the downward trend in investments.
Construction investment, which increased 1.3 percent in the first quarter, decreased 2.3 percent in the second quarter and 3 percent in the third quarter. Facility investment slid from a 6.1 percent rise in the first three months of the year to a 1.1 percent increase in the April-June period and a contraction of 2.3 percent in the following three months.
Private consumption fell 2.3 percent in the third quarter, down from a 1.1 percent gain in the previous quarter, partly affected by the fourth wave of the pandemic hitting the country.
Exports were the only bright spot for Korea’s economy, rebounding to an increase of 1.5 percent from a contraction of 2 percent over the cited period. But it is unclear whether the upturn will continue in the coming months amid disruptions in global supply chains and rising inflation that is expected to haunt major economies for a longer period than earlier thought.
The government is striving to boost private consumption for the remainder of the year to achieve its 2021 growth target set slightly above 4 percent. It plans to resume discount coupon programs aimed at boosting domestic consumption as the nation is preparing to enter a phase of “living with COVID-19” in November.
The economy should expand 1.04 percent on-quarter in the final three months of the year if it reaches the annual growth goal of 4 percent.
The government seems to be sticking to the symbolic target ahead of the presidential vote in March to elect the successor to President Moon Jae-in whose five-year tenure ends two months later.
In his parliamentary speech on next year’s budget Monday, Moon went to lengths to boast of the robust economic performance under his presidency. But the latest data from the central bank, which came a day after the address, was certainly embarrassing for Moon and his economic aides.
What they should be more concerned about than the annual growth target is the country’s sagging growth potential that reflects the deepening structural problems weighing on its economy.
A BOK report released in September showed Korea’s potential growth rate for 2021-22 remained at 2 percent. The figure declined from 3.1-3.2 percent for 2011-15 to 2.5-2.7 percent for 2016-20.
A separate report published Wednesday by the Korea Economic Research Institute forecast that the nation’s potential growth rate, which refers to the maximum rate at which an economy can grow without triggering inflation, would fall below 1 percent in the coming decade.
Without a serious and sweeping overhaul of its economic fundamentals, the country will be stuck in a low-growth rut in the long run. Efforts are needed urgently to accelerate regulatory and labor reforms to shore up the long-term strength of the economy.
The Moon administration has neglected such crucial efforts while pursuing a set of misplaced policies that have undermined Korea’s growth potential. Regrettably, it is hard to expect any change in its policy direction until the last day of Moon’s tenure. It is hoped that his successor will take the right steps to sustain the country’s economic growth.
By Korea Herald (firstname.lastname@example.org