Across the Board, Foreign Finance Companies Lower Korean Economic Forecasts

As international organizations and foreign finance companies lower their estimates of the economic growth rate for this year and the coming year, many are showing strong concerns for the Korean economy.

However, the government is confident that a five percent growth rate can be accomplished, and has drawn up the budget bill assuming next year’s growth rate will reach the five percent mark, showing a consistent positive attitude.

Accordingly, economists in and out of the country are pointing out that the Korean government is not facing the serious economic situation objectively and that it is not taking appropriate measures.

The International Monetary Fund (IMF) has lowered its April forecast for Korea’s economic growth from 5.2 percent to 4.6 percent in its international economic forecast report last August 29. The forecast for next year’s economic growth, which was originally 4.8 percent, was also lowered to 4.0 percent.

Earlier, the Asian Development Bank (ADB) reported in its economic forecast for Asia on August 22 that Korea’s growth for this year would be 4.4 percent, down from the original 4.8 percent, and next year’s growth would be substantially lower from 5.2 percent to 3.6 percent.

Goldman Sachs also lowered its forecast on August 15 for Korea’s economic growth to 4.8 percent for this year and 4.0 percent for next year, down from the original 6.0 percent and 6.2 percent.

The top worldwide finance firm Citigroup lowered this year’s growth rate from 5.0 percent to 4.3 percent, and next year’s growth from 4.5 percent to 3.8 percent on August 8.

Lowering the Korean economic growth rate is becoming a trend like falling dominos outside the country.

These institutions are pointing out that the reason for lowering the growth rate is that exports, which pulled up the Korean economy in the past, are slowing down and domestic demand is not showing any signs of recovery.

Experts are taking more notice of next year’s predicted growth rate rather than this year’s. Some are analyzing that if next year’s growth does actually reach the four percent level, the Korean economy will struggle through a serious economic crisis in employment and consumption.

Huh Chan-guk, director of the Macroeconomics Studies Center at the Korea Economic Research Institute, said, “Last year’s growth rate reached only 3.1 percent, and this year, with the unbalanced growth reflected in exports, employment and consumption will contract. If next year’s growth remains at the four percent level, the Korean economy will have difficulty for a considerable period of time to recover from the steep walls of slow growth and low income.”

Jong sik Kong Chi-Young Shin kong@donga.com higgledy@donga.com