Is Korea`s economy headed for sluggish growth like Japan`s?

The fall in Korea’s growth rate is fueling a sense of crisis that the country could face the same economic decline as Japan, which symbolizes long-term stagnation. The Japanese economy is regaining its vigor following the inauguration of Prime Minister Shinzo Abe, but that of Korea has seen growth decline to the 2 percent-level growth.

According to the Bank of Korea, real economic growth was just 2.0 percent last year, the same as Japan’s and the first time for Korea’s growth rate to equal or fall short of Japan`s since 1998, when the Asian foreign exchange crisis erupted.

Experts warn that the Korean economy is growing similar to that of Japan, which has experienced the so-called lost two decades. Japan grew an annual average of 4.6 percent until the 1980s before growth plummeted to around 1.5 percent in the 1990s. The Korean economy expanded 4.4 percent on average until the 2000s, but growth fell to 3.6 percent in 2011 and 2.0 percent last year, showing a similar pattern of decline. This is also similar to Japan in that the economic slowdown was caused by a slumping property market and slowing exports due to a stronger currency.

Experts say the government should boost the growth rate through active monetary policy in addition to fiscal policy. "Japan’s economic growth rate plunged after the country`s per capita income exceeded the mark of 20,000 U.S. dollars," said Oh Jeong-geun, an economics professor at Korea University. "Now, Korea is following Japan’s footsteps of 20 years ago. The (Korean) government and the Bank of Korea should proactively boost the economy.”

weappon@donga.com