Korean economic growth is heating up

From: JoongAng Daily | Nov. 20, 2009
By: Moon Gwang-lip

Korea will be among the three developed countries with positive economic growth this year and become the one with the highest growth rate next year, the Organization for Economic Cooperation and Development said yesterday.

The latest outlook for Korea, a considerable improvement from one released in June, reflects a steady recovery in the private sector of Asia’s fourth largest economy, the organization said.

It even recommended that expansionary monetary policy, which has provided the economy with a major boost, now needs to gradually come to an end in order to better balance the national budget.

Spending, the OECD said, should be scaled back.

“Other exceptional measures to stabilize the economy, such as the expanded support to small and medium-sized enterprises, should be phased out,” it said.

In its revised world economic outlook, the OECD said Korea’s growth rate this year and next year will be 0.1 percent and 4.4 percent, respectively.

That is a significant improvement from its previous forecast. In June, the OECD predicted a 2.2 percent contraction this year and a 3.5 percent growth next year for Korea.

Among the other 29 OECD countries, only Australia and Poland were predicted to post growth in the positive territory, at 0.8 percent and 1.4 percent, respectively.

Next year, none of them were estimated to have a higher growth than Korea’s.

In the revision, the OECD also said Korea will post 4.2 percent growth in 2011 and then record a 4.5 percent average annual growth between 2011 and 2017, close to its potential growth.

“Following the severe contraction in late 2008, Korea has achieved one of the earliest and strongest

recoveries in the OECD area, led by exports and expansionary fiscal policy,” said the OECD in the report.

Finance Minister Yoon Jeung-hyun echoed the optimism on the Korean economy yesterday, saying the economy will grow more than 4 percent next year, which had been a government target.

“Major foreign media and international organizations are showing amazement at Korea’s rapid economic recovery,” he said.

Yoon, however, cautioned against an excess of optimism, saying the employment situation and the private economic sector are still stagnant.

Analysts also point to the new flu as a factor with the ability to weaken the recovery.

Early this month, Hyundai Research Institute said the growth rate could be lowered by up to 7.8 percentage points due to the new flu while the Korea Economic Research Institute suggested a 5.6 percentage point drop.

The government said the new flu will lower growth by up to 0.3 percentage point this year.