Korea's growth potential to suffer further erosion: report

South Korea's growth potential will likely continue dwindling over the next three years weighed by poor consumer spending and sluggish investment, a central bank report said Wednesday.

According to a report by Kang Hwan-koo, an official from the Bank of Korea's research department, the country's growth potential suffered a heavy loss after the 2008 global financial crisis, dipping from an annual growth of around 5 percent between 2000 and 2005 to the mid-3-percent range in the 2011-2014 period.

Based on recent data from the International Monetary Fund and his own analysis, Kang said the country's growth potential has further slipped to the low-3-percent range for the 2015-2018 period.

"The country's growth potential has been displaying a steady decline since 2000 while it is estimated to have dropped to the low-3-percent range following the (2008) financial crisis," he said in his report.

The Bank of Korea slashed its 2016 growth outlook for the local economy to 3.2 percent from 3.3 percent in its latest quarterly report released October.

The state-run Korea Development Institute has also cut its growth forecast for 2016 to 3 percent from the previous 3.1 percent.

The BOK official said the slowing growth could be partly attributed to the slowing rise in the country's population that creates problems of both labor shortages and sluggish spending.

"In the production aspect, a decline in birth rate and aging of the population will lead to a slowdown in the rise of the labor force, while the growth in investment is expected to slow due to a narrowing gap with frontier markets, slowing overseas demand, and growing local and external uncertainties," he said.

South Korea posted an on-year drop in exports every single month last year.

The report said the weakening competitiveness of the service industry and a growing imbalance, such as a widening gap between the income of companies and households, will put an additional dent on local spending and investment.

Already, South Korean companies are sitting on more cash reserves than ever, apparently reflecting their reluctance to invest.

As of end-September, cashable assets held by the 500 largest companies here reached a record high of 158 trillion won ($132.99 billion), the BOK said earlier.

Household income, on the other hand, has been on a steady decline, accounting for more than 70 percent of the country's gross national income in 1990 but just over 60 percent since 2010, while the proportion of corporate earnings in GNI expanded from 15 percent to around 22 percent over the cited period, according to the report. (Yonhap)