ADB report puts Korea in bottom economic tier

Korea, one of the four Asian dragons, is no longer ahead of the economies of Singapore, Hong Kong and Taiwan. Due to falling exports, domestic spending and company investment, the growth outlook of Korea’s economy remains gloomy as it struggles at the bottom of Asia’s growth rankings.

According to a recent report by the Asian Development Bank, Korea’s economy is forecast to grow 2.8 percent this year. The figure is a 0.6 percentage point drop from its earlier 3.4 percent outlook in October.

The report shows that among the top 11 Asian countries with the highest gross domestic product, excluding Japan, only Singapore’s growth outlook (2.6 percent) was lower than that of Korea for 2013. But considering that Singapore’s GDP per capita last year was $51,162, more than double Korea’s $23,113, experts say that the growth outlooks for the two countries aren’t comparable.

Though ADB’s Asian Development Outlook report said Asian countries are recovering from the previous year’s economic slowdown, the trend is hard to see in Korea. The average economic outlook of Asian countries is for 6.6 percent growth this year, according to the report.

“It is a shock to hear that Korea’s economic growth is ranked in the lowest group in Asia,” said Oh Jeong-geun, a professor of economics at Korea University. “My heart hurts to see the country’s low growth trend becoming something permanent.”

Who or what is to blame?

“Exports and domestic spending, which have been the two main engines of Korea’s economic growth, are struggling,” said Yoo Byung-kyu, a senior economist at Hyundai Research Institute. In addition, companies are not investing.

Even more alarming is that there seems to be no sense of crisis in society at large.

“Our society has settled for a status quo of GDP per capita of $20,000,” Yoo said. “Overall, there is really a lack of crisis consciousness.”

Despite the low growth trend, the government hasn’t been able come up with a strategy to raise per-capita GDP to the $30,000 to $40,000 range.

“At present, the Korean economy has lost its ability to create jobs,” said Yoon Chang-hyun, president of the Korea Institute of Finance. “Even though the government can create jobs by easing regulations imposed on the service industry, including the medical and legal sectors, the government isn’t proposing deregulation policies at all.”

Some experts also point to the Bank of Korea’s attitude toward the low-growth trend. The central bank’s monetary policy committee for the past six months has been reluctant to lower the benchmark interest rate even though the Ministry of Strategy and Finance lowered its growth forecast to 2.3 percent for this year.

Others blame the government and political circle for pushing corporations to the edge of a fiscal cliff. Ever since the start of the Park Geun-hye government, large companies have been under pressure as policy makers and lawmakers launched various “economic democratization” measures by imposing heavier punishments, for example, on businesses found to have favored their affiliates.

“Rather than lashing out at large companies by legislating economic democratization rules, the government and the political circle should try to create an environment where large companies are able to invest in the domestic market,” said Yoon from the Korea Institute of Finance.

The Korean economy also has been hit by the weakening yen. During the G-20 finance ministers’ meeting in Washington, Japan remained firm that it will push ahead with its aggressive monetary expansion to fight deflation.

“Korea’s already sluggish exports will be faced with even more difficulty in the latter half of this year when they really start to be affected by the weakening yen,” said Jeon Min-kyu, a senior economist at Korea Investment & Securities.

By Lee Sang-ryeol, Lee Tae-kyung [angie@joongang.co.kr]