A growth outlook report recently released by the International Monetary Fund forecast Korea’s nominal per capita gross domestic product would reach $36,750 in 2020, up 31.4 percent from last year’s $27,970, while the figure for Japan would increase just 6 percent from $36,222 to $38,174 over the same period. In terms of purchasing power parity, Korea’s per capita GDP was projected to amount to $41,966 by 2018, surpassing Japan’s $41,428.
The weaker yen, which results in reducing Japan’s GDP estimates converted into the U.S. dollar, partly accounts for Korea’s relatively better prospect. Still, the IMF forecast might well have been news for Korea’s economic policymakers to cite in making a case for the country’s robust economic performance in the coming years. In fact, no Korean official came forward to mention it.
The projection by the IMF seemed out of tune with a growing sense of crisis shared by economists and business leaders here about the increasingly gloomy outlook for Korea’s growth.
Many analysts point out that the country’s current economic conditions look more like those Japan had faced in the mid-1990s ahead of dipping into what came to be two lost decades of recession. Their view is that the Japanese economy is finally getting out of the long slump while Korea is struggling to avoid being dragged into a frame of economic downturn with little success so far.
Certainly, Japanese companies are continuing to accumulate wealth, which is translating into more investment and wage increases. According to figures from a Japanese policy investment bank, Japanese manufacturing firms’ spending on facilities is forecast to increase 24.2 percent this year, the highest rate since 1995.
In contrast, most Korean companies have posted a decline in earnings, shelving investment plans.
Japanese manufacturers are also poised to have a competitive edge over their Korean competitors under the 12-member Trans-Pacific Partnership trade deal concluded last month. Tokyo joined the U.S.-led free trade accord as a founding member while Seoul has yet to begin negotiations on the terms of its entry.
Korea has seen its exports to Japan, the world’s third-largest economy, falling continuously in recent years. Japan’s proportion of Korea’s total overseas shipments decreased from 7.1 percent in 2012 to 6.2 percent in 2013, 5.6 percent in 2014 and 4.9 percent in the first nine months of this year, according to figures from the Ministry of Trade, Industry and Energy. Japan, which was the largest market for Korean exporters in the 1970s, now ranks fifth following China, the U.S., Hong Kong and Vietnam.
This downward trend may be attributable partly to the weaker yen, which makes Korean products more expensive in Japan’s markets. But disputes over historical and territorial issues, which are aggravating the public sentiment of the two nations toward each other, have also hampered the atmosphere for boosting trade and economic cooperation between the neighboring states.
It is natural that calls are mounting here for expanding economic ties with Japan. Economists say Korea may be able to narrow the economic gap with Japan more rapidly and effectively by trying to boost trade with it, not leaving it on the path of contraction. They note Korea should acknowledge it has a long way to go before catching up with Japan’s advanced economy.
Regarding this, experts raise the need to conclude a bilateral free trade agreement with Japan. Talks on the Korea-Japan FTA have stalled since 2004 in the face of opposing voices from local industries to removing barriers to importing Japan’s manufactured goods. Korea may find a new momentum to revitalizing the negotiations in the process of making preparations for its entry into the TPP.
In his recent contribution to a local daily, Choi Byung-il, professor at Ewha Womans University in Seoul, argued the Korean government should no longer be held back by vested interests in pushing for the FTA with Japan, which he said would bring much benefits to consumers and eventually help boost the country’s industrial competitiveness.
By Kim Kyung-ho (khkim@heraldcorp.com)
