Researchers skeptical of government’s 3.8% optimism

Skepticism is growing over the government’s growth target this year as an increasing number of experts are dismissing the figure as unwarranted optimism.

The Ministry of Strategy and Finance on Sunday reaffirmed its previous forecast of 3.8 percent growth this year, citing positive economic indicators globally.

“The (South Korean) economy is expected to achieve a 3.8 percent growth this year, with the recovering global economy, falling oil price and investment-friendly policies deemed to fuel the domestic consumption,” its report stated.

However, major economic research institutions are expressing doubts over such optimism, saying that low corporate investment and high household debt will altogether cut down domestic consumption.

LG Economic Research Institute and Goldman Sachs estimated the country’s growth rate at 3.4 percent, Hyundai Research Institute and Samsung Economic Research Institute at 3.6 and 3.7 percent respectively and HSBC at a low 3.1 percent.

“The actual growth rate this year is likely to be lower than the government’s estimate,” said Oh Jung-keun, the cochair of the Asia Finance Society and honorary researcher of the Korea Economic Research Institute.

The economic expert observed that the growth rate is “highly likely” to fall below 3 percent, citing the key rate raise in the U.S. and the ongoing recession in the eurozone. He expected that the falling oil prices would pull down the consumer inflation to 1 percent or even lower.

The Korea Development Institute, a state-funded economic researcher, estimated the growth of consumer consumption would be trapped in the 2 percent range, largely due to the country’s growing household debt and the aging society.

The KDI also expected that the companies’ weak performance in 2014 is likely to cut down on investment. “There has been a general decrease in the sales revenue and operating profit among the corporate entities, making them more conservative about investment,” said KDI researcher Kim Sung-tae.

In the third quarter of 2014, the country’s corporate facility investment rate fell 0.5 percent from a year ago, according to the KDI’s quarterly report.

In the same period, the average operating profit to sales fell to 4.2 percent, down 0.9 percent from a year earlier, in a separate report compiled by the central bank.

LG Economic Research Institute pointed out that Korea ― which owes much of its fast-paced economic development to manufacturing and exports that burgeoned in the 1970-1980 period ― has to look into the productivity problem of the service industry sector. The institute contended that Korea’s service industry has been chained to the costly yet unproductive competition, drying up the companies’ capacity for innovation.

By Chung Joo-won (joowonc@heraldcorp.com)