South Korea will be the largest gainer if the global economy emerges from the fiscal crisis, showed a recent analysis of the OECD (Organization for Economic Cooperation and Development). In its recent report titled ‘Looking to 2060: Long-term global growth prospects’, the OECD analyzed that Korea will see a 33 percent improvement in GDP (gross domestic production) in 2060 from the current estimate based on the scenario that the world achieves fiscal consolidation. In other words, Korea will be the largest gainer from the fiscal consolidation and structural reforms. This is compared with the US’s 3.5 percent, Germany’s 16.7 percent and Japan’s 16.3 percent.
The OECD suggested the scenario that combines deeper structural reforms with more ambitious OECD fiscal consolidation policies in which OECD countries are assumed to consolidate their budget position faster than in the baseline scenario to reduce debt ratios to 60 percent or lower. Structural policy reforms provide for a faster improvement in product market regulation, higher labor force participation rates and reductions in the tax wedge to lower trend unemployment. In addition, it is assumed that welfare and financial reforms in non-OECD countries occur more quickly than assumed in the baseline: whereas public spending on social protection is assumed to increase by four percentage points of GDP by 2040 in the baseline. In the combined scenario, the largest gainer is Korea where there are large potential gains from raising labor force participation. The second, third and fourth largest gainers were Italy, Belgium and Israel in sequential order.
Bolder structural reforms and more ambitious fiscal policy could raise long-run living standards by an average of 16 percent relative to the baseline scenario of moderate policy improvements. In other words, Korea, heavily-dependent on external trade, has higher potentials for improvement in GDP than any other country in the world. ‘Fiscal consolidation’ that the OECD describes means that the average debt to GDP ratio around the world fall below 60 percent.
[Written by Hyunkyu-Shin - Jieun Lee/ edited by Soyoung Chung]
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