Government upbeat about economy despite weak growth potential

South Korean policymakers have painted a rosy picture on the economy for the fifth consecutive month, but a number of think tanks have raised concerns about weakness in core growth engines.

In its latest monthly report published on Tuesday, the Finance Ministry said the positive signals for an economic recovery are expanding despite external uncertainties, such as the Korean won’s record strength against the Japanese yen and the protracted slowdown in the global economy.

It also stressed that “the economy is coming out of the slump it entered in the fourth quarter of last year, as indices including output, consumption and investment in the construction sector are showing overall improvement in a gradual manner.”

The monthly reports ― issued since the beginning of year ― continued to highlight private consumption, saying there were increasingly positive signs of a recovery in domestic demand.

According to the May report, private consumption in the first quarter of 2015 increased by 0.6 percent from a quarter before and by 1.5 percent from the same period last year, respectively.

The ministry also predicted that the positive figures would continue this year, saying that car sales and credit card use surged in April.

The state-run Korea Development Institute, in its recent report, also said the indices for private consumption were modestly improving.

But research center stressed that sagging exports were hampering Korea’s economic recovery. In addition, there is still a lot of uncertainty surrounding a slowdown in emerging countries and the ongoing default worries in Greece, it said.

Considering the extreme slump in GDP growth to 0.3 percent in the fourth quarter of last year, the quarter-to-quarter growth of 0.8 percent in the first quarter of 2015 could not be regarded as enough to signal a regular-paced recovery, the KDI report said.

The nation’s export performance is worsening. On a year-on-year basis, exports fell by 0.9 percent in January, 3.3 percent in February, 4.3 percent in March and 8.1 percent in April.

Some private think tanks have reportedly started the process of reducing their GDP forecasts for this year. And increasing number of economists say that Korea will see its growth potential ultimately limited at 3 percent, down from the previous 4 percent mark.

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