Korean Economy News
Korea's presidential econ aide shoots down crisis theory, sees better economy next year
2019-10-07


Park Yong-beom and Kim Hyo-jin



South Korea's presidential office shot down talks of deflation-accompanied stagnation and predicted the Korean economy to pick up from next year.

Lee Ho-seung, the president's top secretary on economic affairs, suspected "ulterior motives" behind the "hyped negative" views on the economic state.

"The economy has been slowing for 24 months. A technical rebound can be expected early next year," he told Maeil Business Newspaper in his first media interview since the former vice finance minister was promoted to the Blue House office three months ago.

He referred to international projections that the United States and China would not be able to sustain the head-on clash for long, which will help clear up some of the uncertainties on the external front.

Many economists predict the Korean economy to do its worst in a decade this year and deteriorate further next year.

The government has continued to downgrade growth forecasts for this year, with the finance ministry giving an estimate of 2.4-2.5 percent and the Bank of Korea 2.2 percent. These projections are still higher than those from a majority of private research and banking institute estimates.

Lee admitted the country would not be able to meet the growth target for this year, but did not see the need to revise down the outlook.

The yearlong tariff war between the U.S. and China, as well as Korea's own trade row with Japan, has taken a heavy toll on the export-reliant economy. Exports dropped for the 10th straight month in September, weighed by the slowdown in the country's mainstay chip sector and reduced shipments to the world's two largest economies.

"It's important to be on alert but a slowing economy from external factors cannot be a crisis," Lee said.

He pointed out that Korea's economic growth rate last year was the second-highest after the United States among countries with a population of more than 50 million and per capita income of $30,000.

Lee said deflationary concerns were also overblown. "Deflation refers to a general, persistent fall in prices across a broad range of sectors, which is not the case in Korea," he said.

He estimated Korea's real inflation (excluding volatile or supply factors) to be around 1.2-1.3 percent and projected it to stay at this level next year.

Korea experienced its first negative inflation in September, with the consumer price index sliding 0.4 percent from a year ago. Inflation has hovered below 1 percent throughout the year, the longest stay in the zero territory since 2015. Core inflation, excluding volatile agricultural product and oil prices, also hit a 20-year low of 0.6 percent.

Regarding Japan's export curbs, Lee said the two countries are engaging in working-level talks in diplomacy and trade but that the efforts were meaningless without "a complete restoration of relations."

The relationship between the two Asian neighbors sharply soured after Tokyo tightened export controls on high-tech materials needed for the production of chips and display panels, Korea's key export items. Tensions escalated further when Japan stripped Korea from its white list of trusted trading partners, prompting Korea to take a similar tit-for-tat action.

The dispute stemmed from Korean court rulings on wartime reparations during Japan's occupation of Korea. Tokyo has vehemently opposed the rulings, saying all claims were settled in a treaty that normalized bilateral relations.

Lee was critical of Korea's die-hard labor unions. He compared labor relations in Korea with those in Japan, and noted that Japanese unions do not stage walkouts demanding a wage increase.

"It is time we approach labor relations from a global standpoint," Lee said. "Competition at home is meaningless and we would all perish if we don't bolster our global competitiveness."



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