Economic Growth Outlook 2007 is Grey for South Korea

Sources: South Korea Braces for Slowdown, 2007 Growth Outlook Dimmer on Weak Demand, South Korea May Cut Down Growth Target for 2007 on North Korea Risk

The Organization of Economic Cooperation and Development is predicting a slow down in South Korea's economic growth in 2007, blaming it mainly on a slump in private spending and exports. The report states that weak corporate earnings has led to lower bonuses and sluggish private spending since the middle of 2006. The predicted growth rate is 4.4% for next year, down from 5% this past year. The Vice Finance and Economy Minister Bahk Byong-won reported that the job growth rate has not been as fast as expected coupled with a disappointing gross national income growth rate, which altogether contributes to a grey outlook for consumption rates in the near future.

Of course, the biggest grey cloud over South Korea's economic health for the New Year has been the nuclear stand-off with North Korea. Economists had said that uncertainty and concerns that North Korea could be preparing for a second nuclear test could dampen the business outlook to the extent of having a negative impact on the overall economy. Due to these and other unexpected factors, the Finance Minister has had to revise and downgrade his economic growth target and forecast to reflect the new pessimism that has taken hold of the nation since the nuclear issues first made news.

However, some analysts are looking to several factors that may help South Korea make this slump short-lived. For example, decreasing oil prices and a stabilized exchange rate will help corporations to cut back on losses. In addition, Korea's increasing focus on information technology technology and communications products along with its trading ties with China may help speed up the exporting rates.

Questions:

1) What measures can South Korea take to better brace itself in the case of increasing intensity in the nuclear conflict with North Korea?

2) How can the government help businesses to pick up and also encourage domestic spending? Should it implement strategic budget spending or tax incentives to these ends?

3) Have the sluggish U.S. economy and the increase in global interest rates also played a part in the economic slow-down of South Korea? In what way?