Park pledges to boost domestic consumption

President Park Geun-hye downplayed concerns Monday that the South Korean economy was following the path of Japan’s deflation and low growth, stressing that the country would not waste time to spur the economy despite negative macroeconomic conditions.

In her New Year press conference, Park said the country would pursue its economic structural reforms as a means to prevent Asia’s fourth-largest economy from falling further into low growth.

“Although our country’s inflation rate is currently low, many experts said it will not face deflation as the rate has been stably maintained at around 1 percent,” Park said.

“We are extremely concerned, however, that Korea’s real growth has been below its potential growth rate. We will push forward to revitalize the economy by increasing spending in advance.”

She said that the government would focus on implementing policies to structurally reform the economy in the face of a rapidly aging population and low birthrate.

The president added that these measures along with balancing growth with exports and consumption would boost the country’s gross domestic product to 3.8 percent this year. The government will aim to spur inbound mobile and Internet spending by eliminating complex online authentication systems.

Many analysts have been skeptical about Korea’s GDP growth hitting the government-forecast 3.8 percent this year in the face of decreasing consumer prices hit by low oil prices and ineffective stimulus measures.

The country’s consumer sentiment has fallen for three straight months to hit 102 last month, lower than 105 in the aftermath of the Sewol ship sinking, which has dampened private spending.

The rate of increase of consumer prices dropped to 0.8 percent last month, the lowest in 15 years. The Organization of the Petroleum Exporting Countries’ decision to increase supply to weaken oil prices in defiance of the U.S. shale gas boom has weighed down on inflation. On the other hand, low oil prices have helped decrease manufacturing costs, which can further boost exports, the country’s main growth driver.

Although Korea’s central bank lowered its key base rate twice last year to support the government’s fiscal stimulus, which included relaxing mortgage lending to revive the sluggish housing market, they did little to spur consumption.

The Bank of Korea is expected to freeze its rate this week as it waits until the government officially carries out reforms as part of efforts to fuel growth, analysts said. The BOK will hold its monetary policy meeting this Thursday. 

“We will discuss with macroeconomic policymakers regarding a (possible) rate cut,” Park told the press.

By Park Hyong-ki (hkp@heraldcorp.com)