OECD says economy could grow 4% this year

The Organization for Economic Cooperation and Development yesterday predicted that Korea will record 4 percent economic growth this year, largely thanks to an increase in exports, which will be boosted by economic recovery in advanced economies.

The economic outlook for 2014 unveiled yesterday was 0.2 percentage point higher than the prediction set in November last year.

The OECD also yesterday predicted a 4.2 percent growth rate for 2015.

Korea’s growth outlook was higher than the estimated global growth rate of 3.4 percent for the year, which was revised down from 3.6 percent in November, largely due to slowing growth rates in emerging economies such as China.

Other factors include instability in European markets and the U.S. tapering its stimulus program. The 2015 global outlook remained unchanged at 3.9 percent.

As for Korea’s growth, the OECD report cited the country’s blossoming exports as the main reason for upping the growth rate. The country’s exports for April grew 9 percent year-on-year to $50.3 billion and recorded surplus for the 27th straight month.

The report explained that 2014 and 2015 will be a starting point for increased growth as free-trade pacts made a few years ago will start taking full effect and will preserve export benefits to Korea. The report said the FTAs made with the European Union in 2011 and the United States in 2012 will be the driving forces, as well as pacts made with Canada and Australia this year.

It said that in the long term, increased exports will contribute to vitalizing private companies’ investment and employment activities and raising general salary levels.

But the report added that “high household debt will continue to constrain private consumption.”

Household debt has increased over the past few years to 1,021.3 trillion won ($991 billion), at the end 2013, according to the Bank of Korea. It was Korea’s highest recorded household debt, surpassing the previous record of 993.6 trillion won last September.

The OECD advised the Korean government to make escaping the slow-growth trap its top priority by tackling challenges such as an aging population and sluggish service sector.

BY KIM JI-YOON [jiyoon.kim@joongang.co.kr]