KDI lowers its hopes for economic growth through 2017

Korea’s state-run think tank on Tuesday trimmed its economic growth outlook for this year to 2.6 percent, down 0.4 percentage points from a prediction announced in December.

The prediction by the Korea Development Institute (KDI) is lower than the 2.7 percent forecast by the Bank of Korea (BOK) and the Organization for Economic Cooperation and Development (OECD) but identical to what the International Monetary Fund suggested earlier this year.

Even though the BOK predicted next year’s growth rate will be around at the 3 percent level, the KDI on Tuesday said the growth rate will remain slow at 2.7 percent. The KDI’s report said a fall in exports and construction investments are having a negative impact on the local economy.

“One of the biggest problems holding the local economy back is the slow restructuring processes that are ongoing in Korea,” the KDI said in a report. “Restructuring is causing uncertainties in the local economy and the negative impact will grow if large numbers of employees are laid off in the process.”

The KDI also warned that some external factors, such as a possible interest rate increase by the U.S. Fed, might negatively affect the local economy in the long run.

“The rate increase can bring down emerging markets rapidly and Korea’s economy can be affected by it as well.”

The KDI recommended the central government be actively involved in pushing debt-ridden companies to go through restructuring and to set clear guidelines about it.

“It is better for financial institutions, owners and shareholders of such companies and employees to take responsibilities collectively.”

The KDI said exports for this year will decrease 8.2 percent year-on-year and the consumer price growth rate will record 1.1 percent.

“The consumer price growth rate is still very low at the 1 percent level and it is expected to continue to stay this way for a while,” said the KDI. “The BOK easing some of its monetary policy might help the local economy grow as well.”

The state-run think tank also predicted this year’s unemployment rate will record 3.8 percent, up 0.3 percentage points from the previous year, and it said it will be 3.7 percent next year.

“The size of the economically active population continues to grow but only about 300,000 people are getting new jobs every quarter and the unemployment rate is relatively high,” said the KDI. “The employment rate for manufacturing and service industries are slowing down compared to the previous year.”

The KDI added that the number of people between the ages of 15 and 64 is decreasing and companies are reducing the number of new employees due to the sluggish economy, which might suggest that the unemployment rate will stay high next year as well.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]