The Korea Herald

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S. Korean economy unlikely to recover fast: think tank

By 양승진

Published : April 25, 2012 - 15:58

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 The South Korean economy is not expected to make a quick recovery from its current slump due to external uncertainties and domestic problems, a local think tank said Wednesday.

"A stable and rapid rebound of the South Korean economy is not in the cards as the private sector remains vulnerable to economic shocks and lacks resilience," Samsung Economic Research Institute(SERI) said in a report.

The report said Asia's fourth-largest economy will likely be weighed down by weak exports, growing inflation, high household debt and a deterioration in the soundness of the financial sector.

According to the report, the growth of South Korea's exports will likely lose steam sharply this year due to the persistent eurozone debt crisis as well as a slowdown in China's economic growth.

Consumer prices will remain high throughout the year due to rising crude oil and food prices, which could squeeze private consumption and subsequently have an adverse effect on domestic demand.

Last year, the nation's consumer prices jumped 4 percent from a year earlier, hitting the upper ceiling of the Bank of Korea's 2-4 percent target band. For this year, Seoul expects consumer prices to go up 3.2 percent.

The report also said the country's high household debt is likely to stunt private consumption and lead to weaker economic growth, as households' debt payments jumped last year amid high inflation. 

As of September 2011, South Korea's total outstanding household debts, which include loans and credit purchases, stood at a record 892.5 trillion won ($782 billion).

The report warned the country's banks and non-bank financial institutions may be exposed to increased problem loans as many low-income earners are unable to service their debts.

SERI's gloomy report comes after the Bank of Korea, the country's central bank, downgraded its economic growth forecast for 2012 to 3.5 percent from 3.7 percent. (Yonhap News)