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(News Focus) S. Korea's newly elected President Moon faces hard economic tasks: experts

2017/05/10 00:23

By Kim Boram

SEJONG, May 10 (Yonhap) -- Although Moon Jae-in pulled off a clear cut win in the presidential elections and is sure to be South Korea's next president as the votes are still being counted, many uphill challenges at home and abroad are awaiting the new chief executive and his economic policymaking team, experts here said Wednesday.

They noted the most urgent task is to provide additional growth momentum for the South Korean economy, which is showing some clear signs of recovery thanks to brisk exports and investment.

Asia's fourth-largest economy saw its outbound shipments jump to a nearly seven-year high of 24.2 percent in April, extending their winning streak to six months.

The improvement in exports is largely attributable to the recovery of the global economy as the International Monetary Fund (IMF) estimated that the world economy will grow 3.5 percent in 2017, up from an earlier estimate of 3.4 percent.

Consequently, South Korea, which depends heavily on its out- and inbound trade for growth, revised up its exports growth forecast for 2017 to as high as 7 percent from its more modest earlier target of 2.9 percent.

Containers are being loaded onto ships in the port of Busan in this undated file photo. (Yonhap) Containers are being loaded onto ships in the port of Busan in this undated file photo. (Yonhap)

At the same time, facility investment posted solid gains recently, largely led by the stellar sales of computer chips, as the equipment investment index rose 22.8 percent on-year in March.

Against that backdrop, local and international think tanks and private institutions upgraded South Korea's growth forecast for 2017.

The state-run Korea Development Institute (KDI) changed its 2017 growth forecast for the South Korean economy to 2.6 percent from 2.4 percent, and the private LG Economic Institute came up with a 2.6 percent prediction, sharply up from an earlier 2.2 percent.

The IMF also joined the upbeat move to raise its outlook by 0.1 percentage point to 2.7 percent in its latest April economic report.

"Despite a modest economic recovery, the fiscal authorities have to play a major role in propping up the economy in the face of potential external and internal risks," said Kim Seong-tae, a senior researcher at the KDI. "The new government should take more flexible monetary and fiscal policies in the coming months."

   Economists pointed out that still sluggish private consumption may weigh heavily on the economy as political uncertainties have pressed consumer sentiment for months.

"Growth in retail sales and services production remained weak, while consumer sentiment exhibited a slight recovery," said the latest KDI report, adding, "A robust recovery is not yet evident."

   South Korea's retail sales climbed 1.6 percent in March, slightly up from 0.5 percent in the previous month, with the seasonally adjusted growth staying unchanged from a month earlier.

President Moon has earlier vowed to map out a supplementary budget right after he is elected in a way to accelerate the upside impetus further in addition to the 2017 budget worth 400.5 trillion won (US$354 billion).

Some called for a more aggressive and comprehensive roadmap on job creation on a longer-term perspective as private consumption is closely linked with stable household income.

According to Moon's campaign pledges, he said he will create more than 800,000 jobs in the public sector as part of an effort to ease the tightened job market for young people. South Korea's jobless rate for those aged between 15 and 29, was 9.8 percent in 2016, far higher than the total unemployment rate of 3.7 percent.

"The new government has to help people make their own living. It's all about jobs," said Yun Chang-hyun, a senior professor at University of Seoul. "The public sector can hire people in a short term. But on a longer-term basis, the government has to provide better incentives for businesses to employ more people."

   On the external side, widespread trade protectionism stemming from the United States is one of the strongest headwinds that the new president is facing, experts said.

Washington has been tightening its stance against global free trade as President Donald Trump withdrew the U.S. from the massive Trans Pacific Partnership (TPP) free trade agreement and has stepped up attacks on the North American Free Trade Agreement (NAFTA).

He also targeted South Korea, saying that he will fix or scrap the free trade agreement (FTA) between the two countries, calling it "horrible." He said that the Korea-U.S. FTA has caused a massive trade deficit worth $28 billion to his country.

The trade deficit could push the U.S. government to put Seoul on its currency manipulators list in October although it did not take such action in April.

"The trade issue is very important for South Korea. We have to avoid a dispute with the U.S.," said Yun. "The new president has to deal with the trade and currency issues with Washington."