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S. Korea's economic growth to miss gov't goal: think tank

All News 12:08 January 19, 2016

Seoul, Jan. 19 (Yonhap) -- South Korea's economic growth will likely undershoot the government target this year due to sluggish exports and domestic consumption, a private think tank said Tuesday.

In its latest economic report, the LG Economic Research Institute (LGERI) said domestic and external conditions are unlikely to turn for the better this year although there are high expectations of a growth of at least 3 percent.

The government has forecast that the economy will likely grow 3.1 percent on-year in 2016 thanks to improving exports and consumer spending, while the Bank of Korea (BOK) cut its growth projection to 3 percent from an earlier forecast of 3.2 percent.

"It is inevitable that the local economy, which is highly dependent on exports, will see its growth slow down this year with weakening global trade," the LGERI said.

Dwindling demand in the United States and other advanced countries, China's sluggish economic growth and the continued risk for resources exporting countries are all negative external factors, it said.

The research arm of LG Group predicted global demand for Korea's main export items like electric and electronic products, steel, shipbuilding and displays will decline, and competition with China and Japan will intensify further.

The think tank also said a recovery in consumer sentiment is not in the cards.

In addition, the LGERI painted a gloomy picture of the country's growth potential down the road.

"Unless the recent trend of declining productivity improves, the nation's potential growth rate will remain at 2.5 percent per annum between 2016 and 2020, and further fall to the 1 percent level in the 2020s," it said.

The prediction is far below the potential growth rate suggested by the BOK, which predicted 3.0 to 3.2 percent potential growth for the period of 2015 to 2018.

The institute pointed out rapidly growing household and corporate debts could pose a threat to the Korean economy this year.

The total corporate debts, including those held by public corporations, amounted to 1,631.7 trillion won as of the end of September 2015, representing 106 percent of the nation's gross domestic product (GDP).

The ratio of non-financial listed companies, which failed to reap enough operating profits to pay off their interest, was 29.9 percent last year.

The average debt of these companies was tallied at 228.1 billion won as of the end of last year, up from 173.2 billion won at the end of 2010, indicating that there will be high pressure for restructuring of the companies this year.

Household debt, which has surged due to massive mortgages, will increase households' burden for principal and interest payments, shrinking consumption, the think tank said.

Noting the slump in exports and manufacturing is likely to last for a long period of time, the LGERI suggested the country rely more on the domestic-focused service industry for its economic growth.

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