Korea’s GDP growth may stay below 3%: KDI

A major state-controlled think tank forecast Wednesday that South Korea’s economic growth may stay below 3 percent this year due to a continued slump in exports.

In its predictions on the nation’s economy in 2015 and 2016, the Korea Development Institute cited numerous factors domestically and externally, which could pull down the growth potential, particularly this year.

The institute revised its 2015 GDP growth downward to 3 percent from its earlier forecast of 3.5 percent, which is lower than the recent projection of 3.1 percent by the International Monetary Fund as well as the Bank of Korea.

Further, it warned that the GDP growth could even be less than 3 percent if the effects from monetary and fiscal policies do not meet expectations and the government-led structural reform ends in a de facto failure.

“If the problem of rapidly mounting household loan is not settled, the effects of the interest rate cut (in March or additionally in the future) would be restricted,” the KDI said in a statement.

It also showed concern that policymakers have not yet attained tangible results in their efforts to overhaul the state pension system, the labor market and other reforms.

The institute said the slowdown in output of the manufacturing industry and the slump in exports have been major hurdles for overall recovery, though the service sector and private consumption have shown mild improvements.

For the unfavorable external factors, it cited a slowdown in China’s economic growth, longer-than-expected delay in the eurozone’s recovery and widening uncertainty amid the expected rate hike in the United States.

The KDI, nevertheless, predicted the second-half growth would exceed that of the first half. Compared to 2.4 percent growth in the first quarter and the projection of 2.8 percent in the second quarter, it estimated third and fourth quarter growth to reach 2.9 percent and 3.6 percent, respectively.

Private consumption is projected to grow 2.3 percent in 2015, higher than 1.8 percent a year before, it added.

It said, in 2016 the economy and private consumption are forecast to expand 3.1 percent and 2.6 percent, respectively.

Some private think tanks and international organizations have already revised their outlook on Korea’s growth downward or are considering following suit in the coming weeks.

Meanwhile, Deputy Prime Minister and Finance Minister Choi Kyung Hwan warned that South Korea may be overtaken by Japan in terms of economic growth, in his remarks during the economy-related ministers’ meeting on Wednesday.

While Japan is about to witness results from the Abe administration’s deregulations and full-fledge open-door policy toward foreign capital, the Korean economy is caught in the ongoing conflicts between several social groups, which are hampering urgent structural reforms.

“While Japan could possibly become a running player, Korea may fall into the status of a crawling one,” he said.

By Kim Yon-se (kys@heraldcorp.com)