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Korea's Economy to Grow 3.9 pct in 2014

According to Yonhap News,

(SEJONG = Yonhap News) South Korea's economy will grow 3.9 percent in 2014 following this year's 2.8 percent gain as the rebounding global economy will present better market conditions for its exports, the government predicted Friday.

The government will also keep its expansionary fiscal and monetary policy for the time being, with a focus on stimulating the sluggish private sector to make the "warmth" of the nascent economic recovery spill over into the daily life of ordinary people.

"With the improving global economy and the continuing impact of the government stimulus measures, our economy will grow 3.9 percent next year," the finance ministry said as it announced South Korea's 2014 economy management plan jointly with other related ministries.

"This represents the first time in four years since 2010 that the rate would exceed the global growth outlook predicted by the International Monetary Fund," it said. The IMF forecast 3.6 percent global growth for 2014.

The government's latest growth outlook is higher than the 3.7 percent gain predicted by the state-run Korea Development Institute think tank. It is also higher than a 3.8 percent growth estimate by the country's central bank and the Organization for Economic Cooperation and Development.

The outlook follows growing signs in recent quarters that the country is rebounding from its prolonged slump.

The country's gross domestic product grew 1.1 percent in the third quarter from three months earlier. This marked the fastest quarterly growth since a 1.3 percent on-quarter advance in the first quarter of 2011.

Noting that the country's economic recovery seems to be accelerating in recent months, the ministry said the on-quarter growth rate will not fall below the 1 percent range throughout next year and assured that it would be possible for the government to achieve the 3.9 percent annual growth.

With the relatively optimistic view on growth, the government expected that about 450,000 jobs will be created next year, compared with the 380,000 it projected for this year.

The country's consumer price growth will also accelerate to 2.3 percent next year after a subdued 1.3 percent rise this year.

Exports will also likely rebound from the relatively slumping overseas shipments this year, leading the overall growth of Asia's fourth-largest economy.

The government predicted that the country's exports will grow 6.4 percent on-year in 2014 after this year's 2.5 percent expansion.

Its current account surplus, however, will drop to US$49 billion from $70 billion predicted for this year as possibly increasing domestic demand will lead to more imports.

As external market conditions improve, the government said that it will place more emphasis next year on stimulating domestic demand, including sluggish corporate investment and consumer spending.

The change in the policy focus comes amid growing concerns that a protracted slump in the private sector could become a heavy drag on the nascent economic recovery, which has been driven mostly by the government-led stimulus efforts in recent years.

"The economy is not about figures but about life. We cannot say that the economy is actually recovering until the warmth starts to be felt by the working-class and mid-income people," Finance Minister Hyun Oh-seok told reporters.

"This year, we have built up the recovery momentum mostly through government-led efforts. Next year, we will work hard to spread the momentum into the private sector in a way that could consolidate the overall growth mood of our economy," he added.

In a related move, the government said that it will unveil diverse investment-boosting measures next year, a follow-up to a series of deregulation measures taken throughout this year to bolster corporate investment.

In particular, such deregulation and investment stimulus efforts will be focused this year on four areas -- small companies, bio, pharmaceuticals and foreign investors. The government said that it will push to streamline regulations and remove stumbling blocks standing in the way for investment in those areas.

The government also plans to bolster the country's service sector. In January, it will announce measures to boost tourism, and in September, it will draw up a separate set of steps to enhance the competitiveness of the country's service sector.

To support these domestic demand-boosting measures and prop up the economic recovery, the government said that it will maintain its expansionary macroeconomic policy for the time being.

"We plan to manage our fiscal policy flexibly during the first half of next year in a way that can strengthen our economic recovery momentum," Kim Chul-ju, the head of the finance ministry's economic policy bureau, told reporters in a briefing.

He said that more than 50 percent of its fiscal spending will be assigned during the first half of next year to keep up the economic recovery mood by front-loading its budget.

Market experts viewed the government's plan to keep its expansionary policy as "desirable," citing the uncertainty still lingering over South Korea's export-oriented economy.

"It is desirable that the government will keep its expansionary macroeconomic policy given persisting uncertainty over whether the economic recovery mood could continue even after next year," said Cho Young-moo, a senior researcher at the LG Economic Research Institute. "The question is whether the government will be able to secure enough tax revenue to manage its finances in a flexible manner as promised."

Copyrights Yonhap News. All Rights Reserved.

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Source: Yonhap News (Dec. 27, 2013)
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