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Experts say measures to boost domestic demand is critical Updated: 2014-07-03 06:27:34 KST


Earlier hopes that the Korean economy might settle into a stable period of recovery were dashed by April's ferry disaster, which made a massive dent in domestic consumption.
As a result, private institutions have slashed their growth forecasts.
Now a growing number of economists are asking that a new economic team, to be led by the incoming finance minister, use all the fiscal and monetary policies at its disposal to spur growth.
They say the government should pump money into the economy to help it escape from a low-growth trap, even though that could very well lead to a fiscal deficit.
A cut to the key interest rate, economists say, could also be an option.


"The central bank's inflation target band is set at a rather high rate with the nation's inflationary pressure running low. If the pace of recovery continues to remain sluggish, the key rate should be run in a more flexible manner."

Analysts also suggest the government improve its tax policies and cut excessive red tape to boost corporate investment and private spending.
Some recent economic data has left some questioning whether Korea is truly in a recovery phase.
The nation's output across all industries fell for the second straight month in May, while output in the manufacturing and mining sector dropped 2.7 percent last month from a month ago.
That marked the biggest drop since December 2008 at the height of the global financial crisis.
Hwang Ji-hye, Arirang News.

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