With the year 2015 drawing to an end, Korea finds itself still distanced from achieving the long-awaited goal of $30,000 per capita gross domestic product. In fact, the country is seen to remain farther from the landmark figure this year than last year.
All major economic organizations and research institutes at home and abroad forecast that Korea’s per capita GDP in 2015 will drop below the 2014 level, marking the first decrease since 2009 when the nation was struggling to contain the fallout from the global financial crisis.
According to the latest World Economic Outlook report released by the International Monetary Fund in October, the nominal per capita GDP of Asia’s fourth-largest economy is projected to decline from $27,970 last year to $27,513 this year. The IMF predicted it would show a slight rise to $28,524 next year before surpassing the $30,000 mark in 2017.
A recent report from LG Economic Research Institute, a private think tank here, struck a more cautious, if not pessimistic, tone. It forecast Korea’s per capita GDP would stand at $27,100 in 2015 and slide a bit to $27,000 in 2016.
Kang Joong-koo, an analyst at the institute, said a combination of slow growth and a strong dollar was likely to continue to be in place for the coming years, barring the country from reaching the tantalizing target.
“It may be more realistic to presume that Korea will achieve the $30,000 mark in 2020 at the earliest,” he said.
A growth rate in the range of 2 percent seems to be perceived as normal for the Korean economy, which has been struggling to offset the negative impact of sagging exports with measures to boost domestic spending. Even economic policymakers in the government, who had stuck to keeping this year’s growth target above 3 percent, recently conceded that it would be beyond reach. Most economists also give little credibility to the government’s forecast that growth will rebound to 3.3 percent next year.
The weakening of the Korean won against the greenback is another drag on the country’s dollar-denominated GDP. The value of the Korean currency remained at 1,104.30 won per dollar on average last year, but weakened to 1,184.76 won during the third quarter of this year. The won is expected to further depreciate against the dollar in line with a series of U.S. interest rate hikes that are likely to begin with this week’s decision at the Federal Reserve’s policy-setting meeting.
Korea’s per capita GDP, which passed $20,000 in 2006, has since fallen short of reaching the $30,000 goal, a mark the government and people deem as proof the country has finally entered the group of truly advanced economies.
Many economists, however, caution that even if the country achieves the landmark figure, there will be no guarantee it will continue to remain above the level without structural reforms needed to boost the competitiveness and efficiency of its economy.
“Someday, we will be able to arrive at the $30,000 milestone,” said Kang. “The important thing is whether our economy will have the fundamental strength to keep going beyond it.”
Many economists here say Korea should learn lessons from the different paths that have been taken by Japan and the U.S. since the two countries saw their per capita GDP surpass the $30,000 mark in 1992 and 1996, respectively. Due to its reluctance to carry out structural reforms, Japan has been locked in the $30,000 range for more than two decades, with this year’s figure estimated to reach $32,481, down from last year’s $36,222. In contrast, the U.S. has maintained its economic vitality through market-driven structural reforms, boosting its per capita GDP above $40,000 in 2004 and exceeding $50,000 in 2012.