The South Korean economy has already entered a phase of stagflation amid high oil prices, upward inflationary pressures and a widening current account deficit, the head of the nation's top business lobby said Wednesday.
"The Korean economy has already entered a period of stagflation as the growth rate is likely to continue to slow for consecutive quarters in the second half of this year," Cho Suck-rai, chairman of the Federation of Korean Industries, was quoted as saying in a statement.
"At this point, the government has little room to maneuver to overcome current economic difficulties."
It is the first time that the FKI, which represents the nation's family-run business conglomerates such as Samsung and Hyundai Motor, has said the economy is in a state of stagflation, which refers to high inflation amid stagnation.
So far, government policymakers have downplayed concerns over stagflation. Last Thursday, Finance Minister Kang Man-soo said the economy is not in a phase of stagflation, but "may be heading in" that direction.
In June, South Korea's consumer-price inflation rose 5.5 percent and analysts say it will be difficult to reverse the inflation's upward trend unless oil prices decline significantly. South Korea is the world's fifth-largest importer of crude oil.
The government of President Lee Myung-bak, who took office in late February with the mission of revitalizing the economy, recently cut this year's growth forecast to 4.7 percent, well below its earlier target of 6 percent.
To help the government prop up the economy, South Korea's top 30 business conglomerates said they will spend a total of 94.5 trillion won ($94 billion) this year, up 25.2 percent from last year.
The conglomerates also agreed to increase their combined hiring by 3.9 percent this year, the FKI said.