Korea Economic Daily: No 'Rapid Improvement' Expected in the New Year Either

Slight Improvement Compared to Last Year Due to Base Effect
External Issue Uncertainty Hinders Entry into Growth Trajectory
Need to Enhance Labor Market Flexibility and Support Innovative Industries

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Although the new year of Gyeongja (Year of the Rat) has dawned, the economic outlook for this year is not very bright either. Most economic experts expect the growth rate this year to be slightly better than last year, but no rapid improvement is anticipated. This is largely due to external issues such as the global economic recession trend, protectionist policies, and the unpredictable direction of the US-China trade war.

The government and domestic and international research institutions expect this year's economic growth rate to remain below the potential growth rate (2.5~2.6%), settling in the low to mid 2% range. Thanks to last year's very low growth rate, a base effect will cause a technical rebound, but it is still difficult to expect a full-fledged entry into a growth trajectory.

The Bank of Korea and the Korea Development Institute (KDI) forecast 2.3% growth this year, while the Korea Institute of Finance predicted 2.2%. Private research institutions such as Hyundai Research Institute and LG Economic Research Institute also expected growth rates of 2.1% and 1.8%, respectively. Earlier, the government projected a 2.4% growth rate for this year, which is higher than all these forecasts.

The main reason for the lack of a clear improvement is 'uncertainty.' External uncertainties are significant, including the US-China trade war, Brexit (the United Kingdom's withdrawal from the European Union), export conflicts between Korea and Japan, and geopolitical tensions related to North Korea's denuclearization.

On the 3rd (local time), the US Department of Defense announced the deployment of an additional 3,500 troops to the Middle East, heightening tensions in the region and raising concerns about a sharp rebound in oil prices. The high level of uncertainty surrounding external issues means that it is difficult for Korea to proactively lead changes, making responses challenging.

Foreign investment banks (IBs) have a more negative outlook on Korea's economic growth rate for the new year compared to domestic perspectives. JP Morgan projected Korea's economic growth rate at 2.3%, while Morgan Stanley and Nomura forecasted 2.1%. Goldman Sachs predicted 2.2%, and Bank of America (BoA) forecasted 1.6%.

Ultimately, in this low-growth phase, the key issue is how much productivity can be increased through innovation amid a shrinking working-age population due to low birth rates and aging. It is advised to resolve labor market rigidity and accelerate the fostering of new industries by deregulating sectors such as data, artificial intelligence (AI), and biotechnology.

The Organisation for Economic Co-operation and Development (OECD), which downgraded Korea's economic growth forecast from 2.1% to 2.0% last year and projected 2.3% for this year, pointed out that for sustainable growth, Korea must enhance mobility and productivity in the labor market to prepare for rapid population aging.

The OECD stated, "Korea's labor productivity is only half that of the top 50% of OECD countries," and recommended "easing labor market regulations and educating on digital technologies to increase employment among women and youth." It also advised, "Improving the quality of jobs for the elderly to alleviate the dual structure of the labor market."

This content was produced with the assistance of AI translation services.