Measure against Slowing Economy

The OECD advised the South Korean government to draft a supplementary budget with its economic growth rate for this year estimated at no more than 2.7%.
The OECD advised the South Korean government to draft a supplementary budget with its economic growth rate for this year estimated at no more than 2.7%.

 

On May 16, the OECD advised the South Korean government to draft a supplementary budget with its economic growth rate for this year estimated at no more than 2.7% due to the slowdown of the Chinese economy, a delay in the recovery of exports, an increase in household debts and the global financial market volatility. The OECD cut its estimate from 3.1% to 2.7% at this time after having adjusted it from 3.6% to 3.1% in November last year.

The OECD also said that the Korean government’s expenditures for this year are to edge up by only 0.4% compared to last year’s reflecting its supplementary budget and this could lead to a fiscal drag, which can be defined as a delay in economic recovery attributable to reduced government expenditures. 

“At present, South Korea has a high level of fiscal soundness and thus it needs to boost the total demand by fiscal expansion in the short term,” it mentioned, continuing, “It is expected that fiscal policy will work better than monetary policy in view of the key interest rate as low as about 1%, household debts, capital outflow, etc.”

The OECD also pointed out that the productivity gap between South Korean conglomerates and smaller companies is dragging down its potential economic growth rate. As of 2014, the latter’s productivity was equivalent to 30.5% of the former’s while the productivity of the service sector was approximately 45% of the manufacturing sector’s.

“One of the ways the South Korean economy can achieve a sustainable growth is regulatory barriers lowered by cost-in cost-out,” it explained, adding, “Women’s economic activities need to be encouraged against a decline in working-age population and the problem of old-age poverty should be properly dealt with.”

 

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