The Organization for Economic Cooperation and Development has slashed its growth outlook for the South Korean economy this year to 2.4 percent, amid the prolonging impact of US-China trade frictions, the Ministry of Economy and Finance said Tuesday.
The domestic economy will grow 2.4 percent this year and 2.5 percent in 2020, according to the OECD Economic Outlook report. Previous estimates suggested in March were 2.6 percent, both for this year and next year, while the nation’s actual growth rate for 2018 stood at 2.7 percent.
The global economic growth was projected at 3.2 percent for this year and 3.4 percent for next year. The OECD’s earlier outlook for this year had been 3.3 percent in March this year and 3.5 percent in November last year.
The global trade volume was estimated at 2.1 percent, dipping from 3.9 percent last year.
“Economic growth is projected to slow down in 2019-2020, reflecting weakness in domestic demand and international trade,” the report said.
“Restructuring in the manufacturing sector, notably in some industries facing weak overseas demand, and double-digit increase in the minimum wage are holding back job creation.”
While carrying out a 29 percent hike in its legal minimum wage rate in 2018-19, Korea saw its employment growth drop to 0.4 percent, the lowest since the aftermath of the global financial crisis in 2009.
The job market has recovered so far this year but most of the newly created jobs were in social services and health care.
Korea’s key challenge is to raise its labor productivity, which is currently about half of that in the top half of the OECD member states, the report pointed out.
“Robust labor supply which previously offset low productivity is shrinking with the cut in weekly working hours and the decline of working-age population,” it said.
The downturn in the semiconductor market also delivered a blow on Korea which accounted for over 60 percent of the world’s memory chip market in 2018.
Though the government’s fiscal spending, along with a projected rebound in investments next year, will support growth, the trade-dependent economy will continue to be exposed to China’s sharper-than-expected slowdown and its prolonged trade frictions with the US, according to the report.
“The latest downward adjustment seems to reflect the worsened external conditions, such as the US-China trade conflict, as well as sluggish quarterly figures in investment and exports,” the ministry said.
“The government will focus on accelerating its fiscal spending and having the supplementary budget bill approved (by the National Assembly).”
Each year, the OECD presents its economic outlook report in May and November and the related interim economic outlook figures in March and September.
By Bae Hyun-jung (firstname.lastname@example.org)