Gov’t focus on stability, not growth, for economy
Korea’s economic policies for next year will focus more on maintaining stability than on growth as policy makers go into defense mode over the troubled global economy.
The Korean government yesterday slashed its growth outlook for next year to 3.7 percent from a previous projection of 4.5 percent.
“The European financial crisis triggered by Greece has quickly spread to other euro zone nations like Italy and Spain, which has left the global economy in uncertainty and anxiety,” said Strategy and Finance Minister Bahk Jae-wan yesterday.
Policy makers including Bahk and Knowledge Economy Minister Hong Suk-woo held a joint briefing at the Government Complex building in Gwacheon, Gyeonggi, to announce economic forecasts and plans on how they will manage the economy next year.
“Emerging nations are faced with slowdowns because of a prolonged slump in advanced economies, and Korea isn’t an exception taking into account that we’re living in an environment where countries are closely interlinked,” Bahk said. He noted that Korea’s export growth is slowing, job creation in manufacturing is shrinking and domestic demand, including consumption and investment, are growing soft.
The 3.7 percent growth forecast for 2012 is considerably lower than the 4.5 percent growth hoped for in September. The growth is also the slowest in three years.
This year, Korea’s economy is projected to grow 3.8 percent while in 2010 it grew 6.2 percent.
“It’s often the case that the government’s economic growth forecast is higher than those of private economic research institutes as well as other public institutions like the Bank of Korea and the Korea Development Institute,” Bahk said, explaining that the reason for doing so is to express confidence in policy promotion. “The downside is that the government could lose credibility in the market if the gap between real and projected growth widens.”
Bahk told reporters that the government put more importance on its credibility than aspiring for high growth, and the government’s projection for the country’s growth rate was on a par or just slightly above those of private institutions. The Bank of Korea, which maintained the interest rate last week for the sixth straight month, projected the same growth rate for 2012 earlier this month, also cutting its July forecast of 4.6 percent.
The government also provided projections on key indicators including consumption, employment and investment.
According to the report, private consumption will expand 3.1 percent in 2012, which is an increase from this year’s 2.5 percent. Facilities investment, however, will only grow 3.3 percent, a drop from 4.3 percent this year. Exports will increase 7.4 percent next year, down from a 19.2 percent jump this year.
The ministry forecast 280,000 new jobs will be created next year, which is lower than this year’s 400,000. The ministry, in the meantime, cut its current account surplus prediction from $25 billion this year to $16 billion next year. And consumer prices will rise 3.2 percent next year, compared with 4 percent this year.
“Inflation will ease next year from this year,” Bahk said, noting that prices of grains, raw materials and oil peaked this year.
The ministry also laid out measures that stimulate the overall domestic economy and improve the living of working-class people.
Public companies, for example, will expand the number of new hires from this year’s 10,000 to 14,000 next year. Among the new recruits, public companies will expand the proportion of high school graduates from the current 3.4 percent to 20 percent. The government will also improve the overall investment environment to encourage corporate investment and help small and midsized firms and one-man entrepreneurs boost their competitiveness.
The report yesterday put emphasis on promoting stability by expanding domestic spending and front-loading around 60 percent of the budget in the first half of next year to spur domestic demand.
“Stability should be achieved in areas like inflation and the livelihoods of ordinary people,” said Choi Sang-mok, director general of the Finance Ministry’s economic policy bureau.
By Lee Eun-joo [firstname.lastname@example.org]
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