À̹ÌÁö È®´ë South Korea¡¯s economic contraction this year will be milder than expected as its ¡°fast and timely policy mix¡± has helped minimize the fallout from the coronavirus pandemic compared with other economies, according to the Organization for Economic Cooperation and Development (OECD) on Tuesday.
The OECD, in its latest economic report on South Korea, projected the gross domestic product to fall by 0.8 percent instead of 1.2 percent forecast in June. It was the only upward revisions in its review on 37 OECD members.
No. 2 Turkey was projected to see a dip of 4.8 percent. Japan¡¯s economy was projected to contract by 6.0 percent, the United States¡¯ by 7.3 percent and Germany¡¯s by 6.6 percent.
¡°Korea is the only country to have its economic growth outlook revised upward by the OECD,¡± said presidential spokesperson Kang Min-seok, citing the OECD report on how the country¡¯s ¡°swift and effective measures to contain the virus¡± limited the damage to its economy.
Korea has widely been praised as a coronavirus success story, with its system of mass testing, contact tracing and quarantining held up as an exemplar in the global fight against COVID-19. Thanks to its swift containment, the country has never imposed the kind of strict lockdowns enforced in Europe and the United States. Its daily infections count has hovered below 50 in the past couple of weeks, with the country¡¯s total tally standing at 14,660 as of Tuesday.
Despite the normalization in domestic economic activities, the global recession is holding back exports and investment, the OECD warned, and cited shrinking employment and slump in world trade as potential downside risks.
¡°Further disruptions in world trade and global value chains would hurt the Korean economy, which depends heavily on exports and is deeply integrated in global value chains,¡± the OECD said. ¡°In addition, the COVID-19 crisis is creating financial risks, notwithstanding a wide range of policy interventions, as rising unemployment and loss of income affect debt reimbursement by households and small businesses, while uncertainty increases financial market volatility.¡±
À̹ÌÁö È®´ë The OECD, however, cut its estimate for Korea¡¯s long-term growth potential to 1.2 percent for 2020-2060, compared with 3 percent in 2005-2020, warning the economy could be weighed down by the thinning working population.
It projected Korea¡¯s old-age dependency ratio to be the highest of any OECD country by 2060, topping 80 percent.
For now, the Korean government was appropriately deploying an expansionary fiscal policy to dampen the crisis impact, OECD said.
It projected the budget balance to move from a surplus in 2019 to a deficit of more than 3 percent of gross domestic product in 2020 in the case of a second coronavirus wave, and 2.8 percent of GDP in the case of no resurgence. While it recommended continuing the economic stimulus measures until a full recovery is under way, it also stressed ¡°long-term fiscal sustainability,¡± adding that ¡°income support should be targeted to low-income households.¡±
Monetary policy should also be kept accommodative, the OECD said, and projected inflation to remain very low. The Bank of Korea cut its policy rate by 50 basis points in March and by another 25 basis points in May to a record low of 0.50 percent. As there is limited room for further rate cuts, the OECD advised the central bank to ¡°be prepared to consider unconventional monetary policy measures, going beyond liquidity support.¡±
By Moon Jae-yong and Kim Hyo-jin
[¨Ï Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]