Gloomy Outlook
An analysis has come out that the nation’s per capita gross domestic product (GDP) this year will decline for the first time in six years after the global financial crisis in 2008, owing to the weak won and much lower than expected growth.
The LG Economic Research Institute, the research arm of the LG Group, forecast on July 27 that Korea’s per capita GDP in 2015 will fall to US$27,600, down 1.8 percent from US$27,960 in 2014. The previous forecast had the per capita GDP staying at the US$20,000 level for the tenth year, after surpassing the US$20,000 mark in 2006. The per capita GDP was expected to surpass US$30,000 early this year.
The think tank attributed this year’s fall to the appreciation of the U.S. dollar against the Korean won. The per capita GDP, which is a dollar-denominated index, decreases when the Korean currency depreciates against the U.S. dollar. The average won-dollar exchange rate in the first half of this year rose to 1,099 won per dollar, up a 4.4 percent increase from 1,053 won in the same period last year.
The think tank also said that the sluggish recovery in domestic demand due to the fears of Middle East Respiratory Syndrome (MERS) is hindering the nation from reaching a 3.0 percent level growth and the US$30,000 mark in per capita GDP, a long-standing goal of the government.
The report came about three weeks after the Bank of Korea lowered the country’s annual growth forecast to 2.8 percent from its earlier 3.1 percent on July 9.
The outlook is also not bright. South Korea may only reach a per capita GDP of US$40,000 by 2023 if the country continues its low growth, the Korea Economic Research Institute said, citing the OECD forecast that if South Korea’s potential growth rate falls to 2.9 percent, it would take 17 years for the per capita GDP to rise from US$20,000 to US$40,000. South Korea reached US$20,000 in 2006.
Waiting 17 years would be longer than the OECD average, which is 13.6 years. Among the G7 nations, Japan, Italy, and the U.K. took 8, 13, and 14 years to reach US$40,000, respectively.
Korea’s potential growth rate would also remain at 3.59 percent in 2015, 2.9 percent in 2022, and 1.91 percent in 2034, while G7 nations would be seeing a rebound in the growth rate.