Economy is expected to grow 2.6%

The Korean economy will grow 2.6 percent this year, a report by the Korea Economic Research Institute (KERI) said on Sunday.

The report said that the government’s measures last year to boost the local economy will continue to generate results in the first half, which will help the country overcome falling exports. KERI announced a similar forecast in December.

By categories, local consumption was expected to increase 2.2 percent from a year ago while the investments in construction and facilities were expected to rise by 3.1 and 3.7 percent from last year, respectively.

The institute however said exports will continue to fall this year, by 3.4 percent from 2015. Reflecting such trends, KERI said Korea’s current balance of trade will hit $96.3 billion surplus this year, which is about 7 percent of the nation’s gross domestic product.

The biggest causes of the low growth are the slumping global economy which is shrinking international trades and investments.

KERI said the U.S. economy will not grow much this year, compared to 2015, despite an improving labor market as overall investment and labor’s average wage are predicted not to increase much.

The financial market in China, Korea’s other main export market, is also expected continue its slump and is considered unstable. The low international oil price trend that has been influencing the nation’s industry including auto, shipbuilding and construction will not be quickly rectified due to oversupply. KERI said the average oil price will increase slowly at the end of the year. In the long-term, the institute said the Korean economy will grow by an average of 2.7 percent through 2020 since the local market will not improve much due to its heavy reliance on China in exports, an unstable real estate market and aging society issues. The report said the unemployment rate in Korea will increase in the next five years from 3.8 to 4.0 percent. “The country needs to improve the overall wage system and to provide flexible working hours, particularly for senior citizens, since the average age of workers is increasing,” said Byun Yang-gyu, a researcher at KERI.

BY KWON SANG-SOO [kwon.sangsoo@joongang.co.kr]