OECD slashes forecasts for economic growth

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OECD slashes forecasts for economic growth

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The Organization for Economic Co-operation and Development (OECD) sharply cut its economic growth forecast for the Korean economy to 3 percent from its earlier projection of 3.8 percent last November, citing stagnant domestic consumption and declining exports.

“Output growth is projected to slow to around 3 percent in 2015, reflecting sluggish private consumption in the context of high household debt and stagnant wages,” the OECD said in a report released Wednesday. “Export growth has weakened sharply, reflecting the appreciation of the Korean won … and falling shipments to China in early 2015.”

Korea’s exports are declining because of the nation’s dependence on China, the report said.

“Korea is particularly vulnerable to developments in the Chinese economy, as its exports to China account for 14 percent of Korean GDP,” it stated.

The organization trimmed its earlier economic forecasts in most of Korea’s categories: Exports were down to 1.7 percent from 4.9 percent; imports fell to 2.6 percent from 5.2 percent; consumer price inflation was cut to 0.8 percent from 2.2 percent; and private consumption declined to 2.3 percent from 3 percent.

Unemployment, however, climbed to 3.6 percent from 3.4 percent.

The OECD report came after Korea recorded low inflation rates over the past six months, all of which were close to zero despite doubled cigarette prices.

The slump in consumption also affected the decline in imports, which fell at a faster rate than exports. That led to the longest-ever streak of current account surplus, 38 straight months in May, which economists say was an ironic sign of economic depression.

To salvage the country from low economic growth, a series of measures were advised, including a wide range of structural reforms such as increasing investment, easing regulations and promoting the creative economy.

The Paris-based organization also pointed out that in the midst of its aging society, the Korean government needs to encourage more women to work by shortening working hours, offering job opportunities and reducing the wage gap between men and women. “With Korea’s working-age population (15 to 64) set to peak in 2016, it is increasingly important to reduce gender gaps and to boost the employment rate of women,” it said.

The OECD also shaved its forecast for worldwide economic growth, from an overall average of 3.7 percent to 3.1 percent. Particularly, its outlook for U.S. growth plunged from 3.1 percent to 2 percent. The forecast for the eurozone rose to 1.4 percent from 1.1. percent, while Japan’s prediction fell to 0.7 percent from 0.8 percent.


BY KIM HEE-JIN [kim.heejin@joongang.co.kr]

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