Ready for China’s slow growth, persistent high interest: Harvard Rogoff

Rogoff, professor of economics at Harvard University, forecasting during the forum on overcoming economic crisis hosted by Maeil Business Newspaper in Seoul on Monday [Photo by Lee Chung-woo]

South Korea will inevitably have to rethink its growth strategy that currently relies heavily on its No. 1 trade partner China because the world’s second largest economy’s growth is expected to slow down significantly, said Kenneth Rogoff, a prominent economist from Harvard University.

During a forum on overcoming economic crisis hosted by Maeil Business Newspaper in Seoul on Monday, Rogoff, professor of economics at Harvard University, forecast that China’s economy would grow at a pace of 2 to 3 percent over the next 10 years, and that China’s economic growth model through investment in infrastructure construction has come to an end.

China’s growth will be much lower than a decade ago partly due to a gradual fall in investments in the country by the United States and Europe, he added.

China’s economy is projected to grow 4.8 percent next year based on a survey of global financial institutions compiled by Bloomberg. China has recently ended its zero Covid-19 policy after anti-lockdown protests but doubts remain whether Beijing will be able to reach 5 percent growth target.

Low growth in China can be a double-edged sword to Korea.

Rogoff noted that Asia’s fourth largest economy could benefit from China’s sluggish growth if it can attract foreign capital leaving China. But at the same time, China’s sluggish economy can bode badly for Korea that currently relies heavily on Beijing for the country’s mainstay growth engine trading, which suggests Korea may have to seek ways to reduce its reliance on China for growth.

Rogoff also advised the world may have to embrace for hard landing in the economy because high interest rate and prices environment is expected to persist for some time.

The professor expected the U.S. Federal Reserve to raise base rates to the 5.0~5.5 percent range and that inflation will slow in 2024~2025 but doubts remain whether key rates will return to the pandemic levels.

But the biggest risk factor in the Korean economy is property market, said Cho Dong-chul, president of Korea Development Institute. “Uncertainty could rise in financial market related to asset market and price plunge could be a big issue.”

A sharp fall in property asset prices that account for a lion’s share in household assets can affect domestic spending, Cho noted, while a rise in interest rates will affect not only stock, bond, and foreign exchange markets but also property market.

“The cumulative effect of interest rate hike will rise in real economy and continue until the first half of next year,” he said.

Rogoff, however, brushed off concerns that the global economy will face another crisis like the one in 2008, although high inflation and interest rates will lead to an economic slowdown, even more in emerging countries.