Korea Drops, Japan and Taiwan Rise

Many private economic organizations both at home and abroad have lowered their expectations on the rate of Korea’s economic growth, while raising their expectations of the growth rate of other major countries.

So have The Bank of Korea and the LG Economic Research Institute.

In order to recover from the depression, the government has announced four countermeasures every month since this year, and has increased its fiscal expenditures. However, those measures don’t help in recovering from depressed domestic demand.

According to the Ministry of Finance and Economy and the financial industry on July 8, Consensus Economics, an American economic forecasting organization, lowered its expectation of the rate of Korea’s economic growth to 5.5 percent on their recent report on world economy forecasts released in June. The expected rate of Korea’s economic growth used to be 5.6 percent according to their report released in May.

Consensus Economics puts together forecasts of major economy forecast organizations from all over the world, and announces their estimates for principal macroeconomic variables in over 70 countries every month.

In the case of Korea, the estimate is a combination of forecasts from 17 economy research organizations including City Group, HSBC, Goldman Sachs, Korea Development Institute, LG Economic Research Institute, and Samsung Securities.

However, Japan’s forecasted economic growth rate has been raised from 3.2 percent to 4.1 percent, China’s from 8.6 percent to 8.7 percent, Taiwan’s from 5.1 percent to 5.4 percent, Singapore’s from 6.5 percent to 6.7 percent, and Western Europe’s from 2.0 percent to 2.1 percent.

Consensus Economics commented, “The forecasts on Korea’s domestic spending and facilities investments have been worsened. High oil prices and China’s retrenchment policy might decrease spending even more.”

On the same day, The Bank of Korea has also lowered their forecast on the economic growth rate of the later half of this year from 5.6 percent to 5.0 percent. However, they predict the annual economic growth rate to remain 5.2 percent since the growth rate of the first half of the year had increased to 5.4 percent (estimated) from 4.8 percent which was forecasted at the end of last year.

Lee Joo-yul, director of the research department of The Bank of Korea, said, “If domestic spending and investments on facilities don’t recover as much as expected, the growth in the fourth quarter can be slowed down considerably.”

Accordingly, the Monetary Board of Bank of Korea has decided to hold the call rate to the same level as now, 3.75 percent, at their regular meeting on July 8.

Also, LG Economics Research Institute said “Korea’s economic growth, which is presumed to have grown 5.1 percent in the first half of the year, will only grow 4.8 percent in the second half,” and lowered their forecast on the annual growth rate to 5.0 percent.

In the meantime, according to the Ministry of Finance and Economy, the government has released at least 23 counter plans, including plans to create jobs, this year.

The government has spent 87 trillion, 500 billion won, an all-time high record, to recover from stagnation of domestic demand.

Chi-Young Shin Joong-Hyun Park higgledy@donga.com sanjuck@donga.com