South Korea's Economy Set to Expand 3% in 2018, Government Says
South Korea's Economy Set to Expand 3% in 2018, Government Says
(Bloomberg) -- Rising exports and stronger domestic consumption will fuel economic growth of 3 percent in South Korea next year, the finance ministry said in its annual outlook.
The economic recovery’s momentum will be sustained in the first half of the year, thanks to the Pyeongchang Winter Olympics and easing global trade tensions before fading a bit in the second half as investment in semiconductor-related facilities slows, the ministry said on Wednesday.
Capital investment seen this year in the semiconductor sector, driven by strong global demand, may slow next year, pushing economic growth below the level seen this year, Lee Chan-woo, the deputy finance minister, said last week.
"However, there is a limit to achieving sustainable growth because growth was concentrated in certain areas throughout 2017," Lee said. "Quality of life remains low due to lack of wealth distribution and poor employment.”
The economy is now expected to have expanded 3.2 percent in 2017, versus a previous estimate of 3 percent, the ministry said. Improving global economic conditions helped increase exports, while a supplementary government budget supported growth starting in the second half of the year, it said.
Consumer prices are likely to rise 1.7 percent in 2018, down from this year’s 1.9 percent increase, the ministry said. That would be below the 2 percent target set by Bank of Korea, which in November voted to raise its benchmark interest rate for the first time since 2011.
Read more: Bank of Korea Minutes Show Hike Came Despite Inflation Concerns
South Koreans’ annual per capita income will reach $32,000 by the end of 2018 should its currency continue to trade at around the level of 1,083 won against the U.S. dollar, the finance ministry said. That would put the country above the $30,000 threshold regarded as marking the ascension to a developed economy, a long-held goal.
The current-account surplus is expected to narrow to $79 billion in 2018 from $81 billion this year as oil prices rise and imports increase along with domestic consumption, the report said. Exports will grow 4 percent while imports will climb 6 percent in 2018, it said.
The government will continue its efforts to avoid being labeled a foreign-exchange manipulator by the U.S. Other risks include the normalization of monetary policy in major economies and the spread of trade protectionism.
Jobs, Innovation
A scheduled increase in the minimum wage will help raise domestic consumption, and the government will seek to increase investment and job creation by providing tax breaks for small and medium-sized companies affected by the wage hike.
The government said it plans to accelerate spending on job creation during the first half of next year, to meet its goal of creating at least 230,000 jobs in the public sector for the year. Employment is expected to expand in 2018 at a similar pace as this year.
To boost innovation, the government will urge pension funds to invest more in small-cap Kosdaq stocks by providing tax breaks. In the medium and longer terms, South Korea will spend more on preparing measures to tackle the low birth rate, elderly poverty and low employment rate among women.
To contact the reporter on this story: Hooyeon Kim in Seoul at hkim592@bloomberg.net.
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Henry Hoenig, Jeff Kearns
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