Korean economy losing growth engine amid premature senility

Untitled-71.jpgThe Korean economy is losing its growth engine amid signs of “premature old age,” with its size remaining that of a middle power but its structure changed to that of an advanced country. “Over the past six years, the Korean economy has grown slower than the global average,” said a Hyundai Research Institute report recently. “The gap in growth tempo between Korean and the global economy is likely to widen further.” To rectify this trend, the nation should help its businesses strengthen competitiveness and create new industrial fronts with high added value, it said.
As the most noticeable sign of premature senility, the report cites the declining contribution of exports to economic growth and the rising contribution of domestic consumption. Large and open economies among advanced countries, such as the U.S. and the European Union, have economic structures bolstered by domestic consumption because they also have strong per capita purchasing power and huge domestic markets, the report said.
In Korea, exports have made an absolutely large contribution to economic growth in the past but domestic consumption is increasingly making up for the slump in shipments overseas. “This is an optical illusion of sorts, however, in which the prolonged sluggishness of exports makes domestic consumption appear to be relatively vigorous,” the report said. “It’s not that domestic demand really has grown enough to increase its contribution to economic growth.” Also problematic is the private sector’s low growth rate.
According to the report, Korea’s growth rate in the first half of this year was 2.8 percent, but the private sector’s growth rate was 1.8 percent. The gap indicates that the private sector’s growth rate has failed to keep up with that of the public sector, the report said.
Contributing further to the economic instability is the government’s policy of low interest rates and liquidity expansion, which have not led to technological investment or new employment by businesses but ended up swelling household debt, the report points out. “Although the global economy and overseas environment are not very good, the nation should continue its efforts to recover exports by creating industrial sectors with high added value and investing in research and development instead of relying on domestic consumption,” said Ju Won, chief of the institute’s economic research department.
The government should not try to take the initiative in reinvigorating the economy, but allow private businesses to play that role by offering sufficient incentives for investment, he said.

< Source: KITA>

 

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