South Korea’s annual economic growth fell out of the Organization for Economic Cooperation and Development top 10 for the first time in nine years in 2015.
Asia’s fourth-largest economy grew 2.6 percent last year, ranking 12th, behind Eastern European economies including the Czech Republic, Hungary and Poland, according to the OECD. The Czech Republic grew 4.2 percent last year, while Hungary 2.9 percent and Poland 3.6 percent. The country’s growth was also lower than that of small economies such as Iceland and Ireland.
Yeouido financial district in Seoul (Yonhap)
Korea’s OECD growth ranking fell in 2011 when it came in 7th, then dropped to 8th in 2012 after coming in 4th in 2009 and 2nd in 2010 during the global financial crisis.
The country had usually grown at two to three times the OECD average. However, the gap between growth in Korea and overall OECD growth decreased to 0.5 percentage points last year.
In 2011, the gap stood at 1.8 percentage points, then dropped to 1.7 percentage points in 2013, and 1.4 percentage points in 2014. This is a stark comparison to 2.5 percentage points in 2009 and 4.2 percentage points in 2010 in the aftermath of the global financial crisis.
As Korea’s economy is projected to grow at 2.7 percent this year, down from its initial outlook of 3.1 percent, the OECD said that it is imperative that Asia’s fourth-largest economy pursue structural changes. It also lowered Korea’s growth forecast from 3.6 percent to 3 percent in 2017.
The further fall in growth is due to slower productivity in the service sector, with a lack of small and medium-size enterprises and start-ups supported by policies to boost their competitiveness amid lackluster growth driven by conglomerates. Korea’s productivity accounts for only 55 percent of the top half of OECD economies.
“Labor productivity (output per worker) slowed to around 1 percent over 2011-15. The level of labor productivity in the service sector is less than half of that in manufacturing,” the OECD said in a report.
“Policy promotes the survival of small firms, rather than higher productivity, and very few grow into medium-sized firms.”
It added that its traditional growth model led by family-run conglomerates, or chaebol, has run its course, and that the time is ripe for Korea to stimulate small and medium-sized enterprise competition and entrepreneurship for sustainability through innovation and reforms.
By Park Hyong-ki (hkp@heraldcorp.com)
