Korean Economy at a Crossroads, Recession or Turnaround?
- Economic think tanks project 2005 economic growth at 3.7-4.6 range

The Korean economy is likely to be at a crossroads next year, a long-standing recession or a recovery from a slump.
The Korean government and the Bank of Korea say that the Korean economy is projected to grow at the range of 3 percent in the first half of next year, but gain momentum on the strength of domestic consumption in the second half.
Some critics at private research institutes say they are afraid that the Korean economy may fall into a long-standing recession because chances are slim that corporate investments and consumption of the private sector would pick up steam due to expected weak dollar and slowdown of the global info-tech industry.
Many experts share the view that the year 2005 will be significant for the future of the Korean economy, which stands at a crossroads: gaining momentum for a recovery or going into a long tunnel of recession. They added that 2005 would be a watershed for setting the stage for determining whether Korea can achieve the goal of raising the per capita income to $20,000 and joining the ranks of advanced countries or not.
Deputy Prime Minister-Minster of Finance and Economy Lee Hun-jai recalled during a recent meeting of reporters that looking back into 2004, the Korean economy suffered difficulties, dogged by such unexpected unfavorable factors as the presidential impeachment, a shortage of raw materials, crude oil price hikes and a weak dollar that have sprung up one after another. MOFE Minister Lee painted a rosy picture of the Korean economy for next year, saying that now that all possible unfavorable factors have already developed, the Korean economy would not take a turn for the worse and it would have the effect of bottom out next year.
Many economic experts forecast that internal and external conditions surrounding the domestic economy would be not so stable. In particular, on the external front, predictions show that the global economy, projected to grow around 4 percent this year, is more likely to slow down to the 3 percent range. The global IT economy, which could have a great impact on Korean-made semiconductor exports, is projected to suffer a remarkable slowdown. A possible appreciation of the yuan, coupled with a projected weak dollar trend, would put Korean exporters in the jitters next year.
On the domestic front, the recovery of the domestic economy hinges on whether frozen domestic consumer sentiment can improve. A success or a failure of the government's comprehensive investment plan slated for the second half of next year, designed to prime the pump of the economy has become the subject of a major concern. Such factors as imposing higher tax rates on real estate holdings and transactions, scheduled to put into effect next year, are predicted to have an impact on the domestic real estate economy. The projection is based on the fact that the government to strengthen restrictions on real estate, having been taken since last Oct. 29, had a negative impact on the overall economy.

Economic growth forecasts
Major economic organizations and research institutes see the domestic economy growing around 4 percent, lower than 4.7 percent for the whole of this year, projected by the Bank of Korea. The projected economic GDP growth rates range from 3.7 percent forecast by the Samsung Economic Research Institute and 4.6 percent predicted by the Korea Institute of Finance. The economic institutions shared the view that the economic growth rate will be lower in the second half of next year than in the first half. It means that now that the first half of the year witnessed a 5.4 percent growth, higher than the second half, the year-on-year growth economic growth rate over the same period of the previous year is expected to drop further comparatively. Most of the economic institutions project the first-half GDP growth rate to hover at the 3 percent range, and on the other hand, the second-half growth rate for next year would be predicted to go up a little because the GDP growth rate for the second half of the year was lowered to the 4 percent level.
The Korea Development Institute (KDI), a major Korean think tank, said in its latest quarterly economic outlook that the economic growth will slow to 4 percent next year from this year's projected 4.7 percent as domestic demand remains fragile and exports rise at a lower pace.
The KDI also called for the central bank to maintain the current low-interest rate policy for the time being as consumer inflation is expected to be stabilized gradually due to the rising won and dropping crude oil prices, raising expectations for another ate cut in coming months. The BOK has kept its benchmark call rate unchanged at a record low of 3.25 percent.
On sector-by-sector analyses, exports, which has contributed to buttressing the economy with a 30 percent surge on a customs-clearance basis, is projected to slow down next year, with how much exports will grow likely to influence the economy.
It is no exaggeration to say that the recovery of the economy for the second half of next year depends on how much the government can perk up the moribund consumer sentiment.
The jobless rate for this year is projected at 3.5 percent. Chance are high that the jobless rate for next year will likely go higher than this year because more and more companies are expected to undergo restructuring through such means as introduction of a honorary retirement system due to the sluggish economic recovery. The Bank of Korea projects the jobless rate for the whole of next year to stand at 3.6 percent ¡ª 3.7 percent in the first half and 3.4 percent in the second half, marking a record high since the 2001 when the comparable figure stood at 3.8 percent. nw