South Korea’s real GDP growth for the third quarter of this year and 2019 as a whole are estimated at 0.4 percent and less than 2 percent, respectively. The country’s annual real GDP growth was below 2 percent for only four years after 1953 and the four occasions were because of national economic crises such as oil and financial crises. Given that its potential economic growth rate is around 2.5 percent, concerns are rising over the possibility of a long-term recession.
According to the Bank of Korea, the first of the four occasions is 1956, when the South Korean economy was in the process of reconstruction after the Korean War. The bad weather at that time resulted in an extremely bad harvest and an annual real GDP growth of 0.7 percent. The rate was negative 1.7 percent during the second oil crisis in 1980, negative 5.5 percent during the Asian financial crisis of 1998, and 0.8 percent during the global financial crisis of 2009.
Although this year’s real GDP growth is estimated at less than 2 percent despite the lack of such national crises, the Bank of Korea said that this year should not be directly compared with the four years. “With the potential growth rate itself already as low as about 2.5 percent, an economic growth rate of less than 2 percent is nothing strange at all,” it explained, adding, “The potential growth rates in the past cases were higher than the current potential growth rate and, as such, the impact of this year’s GDP growth is unlikely to be greater than those of the past.”
Experts point out that there is no room for an increase in domestic consumption and investment. “Although external uncertainties are a major problem, private consumption has shrunk at a rapid pace as well, and indices indicate that everything is sluggish,” Daishin Securities said, advising that a higher labor productivity and better responses to the ongoing change in population structure attributable to an extremely low birth rate are required with a growth of 2 percent or so likely to continue for a while.
“Although the government adopted an expansionary fiscal policy, its resources remaining for this year are only 20 percent to 30 percent, and this implies that a 2 percent growth will be hard to achieve,” said Incheon National University economics professor Hwang Sung-hyun. The South Korean government previously estimated this year’s growth at up to 2.7 percent, mentioning income-led growth in the form of 52-hour workweek, upward minimum wage adjustment, and so on, but its calculation is turning out to be wrong.