Economy headed for a long tunnel of low growth

Deteriorations in jobs and other recent economic data are stoking fears of a crisis in South Korea, but experts say the economy is more likely to enter a long and gradual spiral downward, rather than a short-term, cyclical crisis.

Youth unemployment, long-term unemployment, bankruptcy and corporate credit ratings downgrades are some of the indicators that have fallen to levels last seen in the Asian financial crisis in 1997-1998, which sent Korea to near-bankruptcy.

Some see them as reinforcing a popular theory that Korea has a 10-year cycle of economic crashes -- after the 1997-1998 crisis, a global financial meltdown triggered an economic crash in Korea in 2008.

Mindful of such concerns, Finance Minister Yoo Il-ho last week stressed the economy was not in a condition akin to the Asian crisis -- locally referred to as the IMF crisis because Korea was bailed out by the International Monetary Fund -- or the 2008 crisis.

“Economic conditions are different from the previous crises. At present, we see weakness mainly in exports due to low global demand and the external conditions, including the foreign exchange market, are uncertain,” Yoo explained.

“But there is no denying that our economy is confronted with some grave troubles and faces the risk of entering a long-term recession like the Japanese economy did.”

The jobs data, released last week by Statistics Korea, showed that the youth unemployment rate for Koreans aged 15-29, was 9.3 percent in August, the highest reading for the month since 1999, when the figure soared to 10.7 percent in the aftermath of the IMF crisis.

The number of workers who have been out of work for more than six months, classified as long-term unemployed, grew by the largest margin in August since June of 1999. Their share of overall joblessness was 18.27 percent in August, approaching the 20 percent recorded in 1999.

The combined assets of 450 companies under the receivership of the Seoul Central District Court is around 27 trillion won ($24.5 billion) at the end of last month. That compares with the court’s record, set in 2000, of 71 companies and 30 trillion won in total assets.

The number of companies suffering a cut in their credit ratings was 159 last year, the highest level since 1998 when it stood at 171.

“The IMF crisis had a severe shock throughout the economy, but it lasted for about one and a half years. The economy may not face such a negative, short-term shock, but the problems are more fundamental and will last longer,” said Joo Won, a senior researcher at Hyundai Research Institute.

In its recent report, the think tank said the economy was likely to grow 2.6 percent next year, posting annual growth of less than 3 percent for a third year in a row.

By Lee Sun-young (milaya@heraldcorp.com)