By Kim Rahn
Korea’s economic growth rate this year may be lower than Japan’s ㅡ for the first time in 15 years ㅡ as consumption and investment remain stagnant while the neighboring country is enjoying rapid growth through monetary easing which has caused the yen to depreciate.
According to data from the Bank of Korea (BOK) and the Bank of Japan (BOJ) Sunday, Korea’s gross domestic product (GDP) increased by 2 percent in 2012 from the year before.
The growth rate in the first quarter of this year was 0.9 percent from the previous quarter. Since the second quarter in 2011, Korea’s quarterly growth has been less than 1 percent.
The figures were the same as Japan’s. The neighboring country also recorded 2 percent growth in 2012 and 0.9 percent in the January-March period this year.
In announcing the first quarter GDP growth in April, the BOK lowered its forecast for this year’s growth rate from 2.8 percent to 2.6 percent. BOK Governor Kim Choong-soo said the rates in the third and fourth quarters of last year were lower than expected and global economic conditions did not improve as fast as expected.
The BOJ, however, raised its growth forecast for the Japanese economy from 2.3 percent to 2.9 percent, reflecting growing corporate investment and a rise in public and private consumption as a result of the quantitative easing.
If the predictions are correct, it will be the first time for Korea’s annual growth rate to be lower than Japan’s since the Asian financial crisis in 1998 when the Korean economy contracted 5.7 percent and Japan, 2 percent.
Since then, Korea has outpaced Japan in GDP growth. Tokyo has recorded contractions four times whereas Seoul has not.
However, Korea’s growth rate dropped from 6.3 percent in 2010 to 3.6 percent in 2011 and even lower to 2 percent last year, underperforming its growth potential, which the BOK estimated to be between 3.6 and 3.8 percent.
Japan also saw a growth decrease from 4.4 percent in 2010 to minus 0.7 percent in 2011, but the growth rate bounced back to 2 percent last year. The figure was higher than its potential growth rate, 0.8 percent, and the country is optimistic about this year’s figure, too.
Experts say the major cause of Korea’s low growth is sluggish domestic demand: the middle-income bracket decreased from 73.7 percent of the total population in 1990 to 63.8 percent in 2011; household debt soared to 959 trillion won at the end of 2012, a 5.2-percent rise from a year before; and the number of part-time workers reached 8 million.
Lee Geun-tae, a researcher at the LG Economic Research Institute, is concerned about long-term stagnation in Korea, saying many economic situations here are similar to those of Japan when it experienced its decades of low growth.
“A low birthrate and aging population will reduce the labor force, dropping the potential growth rate. The elderly without enough monetary preparation for their post-retirement years will make consumption decline,” he said. “Korea will have a lower level of growth in the second decade of the 2000s than it did in the first decade.”
Researcher Kim Young-joon at the Hana Institute of Finance said if low growth persists, it will negatively affect the confidence of people and businesses and the economy may underperform its potential. “To prevent a Japan-style long-term slump, the government should come up with immediate countermeasures,” he said.