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(News Focus) Economists question whether economic growth momentum will stay

2017/11/27 13:40

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SEJONG, Nov. 27 (Yonhap) -- Economic growth of 3 percent is becoming a certainty for South Korea this year, but the projections vary widely when it comes to next year, as the country confronts questions about growing household debt and sluggish domestic demand, economists said Monday.

The government is confident it can repeat this year's growth in 2018. Such an extended period of economic expansion, which last occurred 2010-2011, would solidify the rebound from years of slump.

Projections from outside the country, however, are not so confident. The International Monetary Fund is about the only external organization that agrees with South Korea's outlook of another 3 percent growth.

Foreign investment banks have taken note of the third-quarter growth this year and raised their growth forecasts for 2018 by about 0.2 percentage point. But most of their predictions are still shy of Seoul's.

Barclays is predicting 3.1 percent growth, the highest among the pack, while Bank of America Merrill Lynch expects to see 3 percent growth.

JP Morgan suggested 2.9 percent, UBS and Citibank both forecast 2.8 percent, Credit Suisse estimated 2.6 percent growth and HSBC said 2.4 percent growth is possible.

Locally, Hyundai Research Institute (HRI) put out a prediction 2.5 percent, while the forecast of the Bank of Korea stands at 2.9 percent.

Economists disagree on whether this year's upbeat performance is a one-off spurt, like in 2014. Then, South Korea grew from 2 percent growth in the two preceding years to pull off a 3.3 percent increase, but the number sank to 2.8 percent in 2015. The pessimists argue that this year's climb, like 2014's, was temporarily boosted by overachieving exports of semiconductors and will not carry over into the new year.

The prevalent view is that economic conditions are not bad.

"The possibility of the world economy dramatically recovering is slim. The rate rise by the United States will act as a brake," Prof. Kim Jung-shik of Yonsei University said. "But there is an outlook that with the pickup in the U.S. economy, the goldilocks economy will prevail."

   Kim added there is optimism that once the strengthening local currency subsides, exports will likely do well going forward.

The critics' view is that domestic demand will be too low to buttress growth momentum. The proof for this argument is the explosive increase in household debt, which surpassed 1,400 trillion won (US$1.29 trillion) in September. Such a level of debt will seriously crimp private spending, pessimists say. In the meantime, economists are betting on a rate increase by the central bank.

"A rate rise will increase the burden of household debts. The key is how the private spending sector will overcome that stress," Joo Won of HRI said. "There was a problem of decoupling between exports and domestic demand in mid-2000s. No matter how well exports do, there will be a problem if local demand is not revived. If what happened then is still applicable, domestic demand will not benefit exports."

   Kang Joong-gu of LG Economic Research Institute said effort should be put into boosting growth potential, which is being undermined by the polarization of the labor market, the aging society and a fall in productivity.

"Structural problems that bring down growth potential are the most worrisome," he said.

(END)

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