The government has reduced its 2016 growth forecast for the Korean economy twice by 0.2 percent each since June.

Its latest prediction that the country’s gross domestic product will increase by 3.1 percent in real terms next year is still rosier than the estimates of local research institutes.

The Korea Development Institute, a state-run think tank, said in a recent report that the country’s GDP growth rate was expected to reach 3 percent next year. It cautioned, however, the number could be lowered to around 2.6 percent if the global economy expanded at this year’s pace of 3.1 percent in 2016.

Projections by all private research institutes remain in the 2 percent range, with the LG Economic Research Institute predicting this week the Korean economy would grow by 2.5 percent next year.

According to the Ministry of Strategy and Finance, its latest growth forecast announced last week -- which was revised down from the September estimate of 3.3 percent -- reflected uncertainties in external economic conditions. Ministry officials said it would be possible for Korea to achieve a 3.1 percent growth in 2016 mainly due to measures aimed at boosting domestic consumption and investment.

Many economic commentators still cast doubts on whether the ministry’s forecast will come true.

Their skepticism is backed by years of witnessing actual economic performance falling short of predictions by government policymakers. This year’s GDP growth is now estimated to remain at 2.7 percent, far below the 3.8 percent projected by the Finance Ministry at the end of last year. The ministry revised down the initial estimate to 3.1 percent in June and adhered to it until October when it began suggesting the readjusted target might also be out of reach.

Policymakers appear little embarrassed with the wide gap between actual growth and their forecasts. An MOSF official said the government’s growth outlook should be seen as reflecting its policy intentions rather than being strictly based on objective economic conditions.

It may be understood in this context that the government has strived to keep its growth projection above 3 percent, which it regards as a bottom line that should be buttressed to prevent the economy from being trapped in the frame of low growth. With the real growth rate stalled in recent years, policymakers are now suggesting that nominal growth rate is an equally important indicator for macroeconomic management.

Critics argue that it is time to depart from the practice of putting forward too optimistic forecasts without feeling burdened with the inevitable readjustments down the road.

A report recently published by the LGERI warned against the tendency of the government and some other institutions downplaying the implication of structural changes that are set to weaken growth vitality over the long term.

The Bank of Korea last week put the country’s potential growth rate for 2015-18 at an annual average 3-3.2 percent, down from 3.8 percent estimated three years earlier. It is practically difficult to achieve a growth rate equivalent to the growth potential.

“Government policymakers may find it increasingly irrelevant to make a growth forecast based on their policy intentions,” said Kim Seong-tae, a KDI researcher.

More importance should be attached to the accuracy of economic forecast, given it serves as a foundation for drawing up policies and has a significant effect on behaviors by economic actors, critics say.

Giving wrong signals on economic conditions may lead individuals and corporations to make a misjudgment, resulting in distorting the distribution of resources.

Caution has also been raised about the possibility of an inaccurate growth projection leading to miscalculating revenues and disrupting fiscal management.

Another concern is that the repeated readjustment of growth forecasts may undermine the public’s trust in the government’s economic policies as a whole.

Critics note government policymakers now need to take a candid look at the actual picture of the economy and carve out a new scheme of making economic forecasts. Growth projections should be perceived as a basis for implementing pertinent policies rather than a reflection of policymakers’ will, they note.

Some propose giving the function of making economic forecasts, which has been assumed by the Ministry of Strategy and Finance, to an independent entity not swayed by financial and budgetary authorities. They indicate an increasing number of member states of the Organization for Economic Cooperation and Development have turned to this system since the mid-2000s to enhance the accuracy and objectivity of economic forecasts.

By Kim Kyung-ho (khkim@heraldcorp.com)