Debt Weighs on Korea’s Growth: IMF

Debt Weighs on Korea’s Growth: IMF

By Park Hyong-ki
Staff Reporter


High household debt, rapidly ageing society and low birth rate will challenge Korea's GDP growth in the long-run, said a senior official of the International Monetary Fund.

Jerald Schiff, an assistant director of the Asia Pacific department for the IMF, said these risk factors could trigger a downturn on consumption and business sentiment, which have been positive, despite global financial volatility since the summer.

``Korea's rapidly aging society due to sharp gains in life expectancy and low birth rate will impact the government's fiscal challenges for pension and health care, and challenge the labor force in the manufacturing sector in the long-term,'' he said at a seminar hosted by the Institute for Global Economics in Seoul Thursday.

He noted that boosting the productivity of the services sector will offset economic jitters, but cautioned a small deficit hitting its current account balance as the services industry is seeing more travelers going abroad.

Although Korea and other Asian emerging markets have shown to be immune to the credit crisis in the United States and the European Union, and shifting to consumption-based from export-based strategy, he said it is premature to say that Asian economies are ``de-linked'' from the western region.

``A slowdown in the U.S. (housing market) poses risks for Korea,'' Schiff said.

Other risks include skyrocketing oil prices and possible massive sell-offs of Asian equities on credit woes. Since Korea and other emerging markets are less exposed to financial turmoil, there is concern over continuous capital inflows into Asia, which could fuel credit or asset bubbles.

The assistant director, however, said that Korea is ``relatively safe'' as the scale of U.S. problems is rather small in the country, and like other Asian economies, it is strongly able to cope with and address problems successfully.

Strong exports to China, which has substituted the U.S. as most of Asia's economies' top destination of outbound shipping, will continue to drive forward Korea's economy, while it and other Asians are coping with high oil prices, offset by strong currencies.

He added that healthy fundamentals and a rebound in the technology and electronics sector will help Korea sustain a ``modest growth'' at 4.6 percent in 2008. The IMF forecasted Korea's GDP growth at 4.8 percent this year.

phk@koreatimes.co.kr