The National Assembly Budget Office (NABO) has published Economic Outlook Update for 2013, which incorporates the latest economic developments in Korea and beyond, to help set the directions for national fiscal management at a time when the government is undertaking the budget preparation process and the establishment of the national fiscal management plan.
The Korean domestic economy is projected to grow by 2.8% in 2013, a 0.8%p increase from 2.0% in the previous year. Export conditions are expected to improve with the volatility of the international financial market eased and the world trade volume recovered, while consumer spending growth is anticipated to accelerate, albeit gradually. At the same time, low growth, which falls far short of the potential growth rate (set at 3.6% for 2013), is anticipated to last and result in the pace of economic recovery being more sluggish than witnessed during the past periods of economic recovery. Low economic growth is expected to persist with the annual average economic grow rate remaining at 3.6% from 2013 to 2016. In the medium term, the prospect for improvement in export conditions is not quite promising due to the prolonged Eurozone crisis, the slowed growth of the Chinese economy, low growth of the US economy, and the yen’s depreciation, while it is difficult to forecast drastic consumer spending growth domestically due to the slowdown in the creation of jobs and the real estate crunch. By year, the economic growth rate is expected to make a rebound from 2.0% in 2012 to 2.8% in 2013, 3.7% in 2014, 4.1% in 2015, and 3.6% in 2016.
As the global economy has not been reporting stable growth recently, it is crucial to brace for a possible downswing in the world’s trading environment. The Bank of Korea also needs to come up with monetary easing programs, which fall in line with the government’s expansionary fiscal policy. It is desirable to push ahead with monetary easing, including interest rate cuts, as price pressure remains low in the medium term. However, it must be kept in mind that monetary easing may increase macro-prudential risk. The household debt-to-disposable income ratio stood at 135.6% at the end of 2012, drawing a rising curve. In addition, the target inflation rate serves as the platform, upon which expected inflation is formed; therefore, it must be noted that with the target set higher than actual inflation, as is the case now, it is likely to spur expected inflation. Also, it is necessary to make preparations in advance for a possible increase in exchange rate fluctuations incurred by the US government’s interest rate hikes around 2015. Lastly, housing market measures must be aimed at boosting home sales and refrain from providing excessive financial aid.
Won Dongah
The Korean domestic economy is projected to grow by 2.8% in 2013, a 0.8%p increase from 2.0% in the previous year. Export conditions are expected to improve with the volatility of the international financial market eased and the world trade volume recovered, while consumer spending growth is anticipated to accelerate, albeit gradually. At the same time, low growth, which falls far short of the potential growth rate (set at 3.6% for 2013), is anticipated to last and result in the pace of economic recovery being more sluggish than witnessed during the past periods of economic recovery. Low economic growth is expected to persist with the annual average economic grow rate remaining at 3.6% from 2013 to 2016. In the medium term, the prospect for improvement in export conditions is not quite promising due to the prolonged Eurozone crisis, the slowed growth of the Chinese economy, low growth of the US economy, and the yen’s depreciation, while it is difficult to forecast drastic consumer spending growth domestically due to the slowdown in the creation of jobs and the real estate crunch. By year, the economic growth rate is expected to make a rebound from 2.0% in 2012 to 2.8% in 2013, 3.7% in 2014, 4.1% in 2015, and 3.6% in 2016.
As the global economy has not been reporting stable growth recently, it is crucial to brace for a possible downswing in the world’s trading environment. The Bank of Korea also needs to come up with monetary easing programs, which fall in line with the government’s expansionary fiscal policy. It is desirable to push ahead with monetary easing, including interest rate cuts, as price pressure remains low in the medium term. However, it must be kept in mind that monetary easing may increase macro-prudential risk. The household debt-to-disposable income ratio stood at 135.6% at the end of 2012, drawing a rising curve. In addition, the target inflation rate serves as the platform, upon which expected inflation is formed; therefore, it must be noted that with the target set higher than actual inflation, as is the case now, it is likely to spur expected inflation. Also, it is necessary to make preparations in advance for a possible increase in exchange rate fluctuations incurred by the US government’s interest rate hikes around 2015. Lastly, housing market measures must be aimed at boosting home sales and refrain from providing excessive financial aid.
Won Dongah