Posted November. 13, 2008 09:27,
The Korea Development Institute said yesterday that the country next year will post its lowest economic growth in a decade.
The leading state-run think tank has forecast growth of 3.3 percent next year, the lowest among projections put out by the government (around four percent); Samsung Economic Research Institute (3.6 percent); LG Economic Research Institute (3.6 percent); and Korea Economic Research Institute (3.8 percent) last month.
The report said falling economic growth will directly result in fewer jobs, with unemployment to rise from 3.2 percent this year to 3.6 percent next year. It also predicted a drastic increase in the economically inactive population, which includes workers who give up or delay finding a job.
The think tanks senior researcher Kim Hee-sam said, Due to the economic slowdown, the number of discouraged workers and those who decide to graduate later or study longer will increase. The economically inactive population, especially those in their 30s and 40s who are usually considered mainstays in the job market, has also surged.
Inflation will hit 3.6 percent next year, slowing from this years 4.8 percent. Slower-than-expected inflation will slightly ease the burden on the people.
On the bright side, the institute said the current account will swing back to a surplus of 8.6 billion dollars next year, up from a deficit of 8.2 billion dollars this year. This is because Korean exports will grow a mere three percent due to the global economic slowdown, but its imports are also expected to increase just 0.1 percent due to falling prices of raw materials such as oil.
If Korea posts a trade surplus as expected, the won will strengthen and thus improve the countrys sovereign credit rating.
On the governments measures to spend more, cut taxes and lower interest rates, the report called the actions appropriate.
The government to be more cautious, however, when it comes to additional tax cuts, it said, adding extra spending is more effective than tax cuts in a temporary economic slowdown.
Confidence in the nations financial system should be restored and more liquidity should be secured for a soft landing of the financial market and real economy, the institute said.
The government should also swiftly restructure cash-strapped financial institutions suffering from bad loans related to real estate project financing, it added.
Senior researcher Jo Dong-cheol said, To maximize the effects of fiscal spending, the government should pour the money into promising projects such as social overhead capital projects that have been already verified, especially those set for completion soon. If the government attempts to seek new projects, the effectiveness of state investment is hard to guarantee.