KDI Expects Unemployment Will Worsen

Korea Development Institute (KDI) predicted that the unemployment rate in the first half of next year will be worse than this year, soaring to 3.7 percent, and that the economic growth rate will rise to 5.3 percent from this year’s three percent.

In its report “Economy Outlook 2004” released on Thursday, the KDI raised its prediction of the growth rate by 0.5 percent to 5.3 percent as economic recovery of developed countries such as the United States has been faster than expected.

The think tank, however, forecasted that due to job instability, the unemployment rate will rise to 3.7 percent in the first half of next year and then fall to 3.2 percent in the second half, averaging 3.4 percent for the year.

The unemployment rate of 3.7 percent in the first half is the highest 6-month figure since it peaked at 4.2 percent in the first quarter of 2001.

“Labor market indicators will not improve until the first half of next year as the service sector that plays an important role in job creation is sluggish and economic recovery is heavily dependent on exports,” said Cho Dong-chul, head of the Macroeconomic Team at the KDI.

The report expected facility investment to grow by 4.9 percent in the first half of next year and 15.2 percent in the second half, thanks to increasing exports. Consumer spending growth rate is expected to stand at 3.4 percent in the first half and 5.6 percent in the second half to be 4.5 percent annually, lower than next year’s growth rate due to soaring household debt and high unemployment.

The report predicted current account surplus will reach $7.4 billion and consumer price will grow by 2.8 percent in 2004.

The KDI recommended that while preventing further expenditures and reducing the burden on the public, the government should maintain the current fiscal policy and implement corporate tax cuts a year earlier than planned.

The KDI said that the government should not intervene in the problems of credit card companies and that foreign exchange reserves have exceeded the appropriate level.

Kwang-Hyun Kim Ki-Jeong Ko kkh@donga.com koh@donga.com