Korea’s GDP Gap Reaches $26 Billion

By Kim Tae-gyu

Staff Reporter

The Korean economy might have generated products and services worth 1,009 trillion won last year but the nation's actual gross domestic product (GDP) was just 979.7 trillion won.

The Samsung Economic Research Institute (SERI) said on Monday that the difference, dubbed the GDP gap, reached 29.1 trillion won ($26 billion) in 2009 due in large part to the financial crisis.

This means that Asia's fourth-largest economy produced output worth 29.1 trillion won less than its potential throughout last year as there were not sufficient jobs supplied for those willing to work here.

``The financial tsunami prompted the country's actual GDP to plummet far below its potential GDP last year. Outside shocks tend to enlarge the gaps just as the Asian crisis did a decade ago,'' SERI senior researcher Hwang In-seong said.

``Back then, the export-driven Korean economy could easily wipe out the gap with the help of developed nations, which fared well. But things are feared to be differing this time since advanced countries are also vulnerable to the slumps now.''

The GDP gaps, which denote the discrepancy between potential and actual output, remained in negative territory in the mid 1990s ― the overheated economy had outgrown its sustainable levels.

The figure abruptly turned positive in the wake of the Asian currency crisis because it stood at 48.2 trillion won before diminishing to 24.4 trillion won in 1999 and 2.2 trillion won in 2000.

Before the financial distress hit the world in late 2008, Korea Inc. faced negative GDP gaps once again in the mid 2000s, at 9.5 trillion won in 2006, 20.6 trillion won in 2007 and 5.8 trillion won in 2008.

``In my view, we can say for sure that Korea recovers from the downturns only when the GDP gap disappears. In that sense, we will struggle for the time being due to the aftermath of the financial crisis,'' Hwang said.

``Even if the Korean economy racks up expansion of higher than 4 percent this year, the output gap will remain too great. It is not likely to disappear in the next couple of years.''

The SERI is particularly worried about the strong Korean won, which has appreciated at a rapid pace against the green back over the past several weeks. This has caused local exporters to lose price competitiveness in the global markets.

The rates moved in the neighborhood of 1,200 won per dollar late last year but it has gained ground and is now fluctuating in the vicinity of 1,120 won per dollar.

In this climate, the government is scrambling.

``In order for the actual economy to catch up with the long-term potential growth level, we have to hurry. In the worst-case scenario, we might not ever be able to overtake the potential growth,'' said an official at the Ministry of Strategy and Finance.

``Accordingly, we are poised to stick to the expansionary policies while frontloading the expenditures of the 2010 budget with the aim of creating enough jobs.''

voc200@koreatimes.co.kr