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Gov’t no longer thinks economy is ‘sluggish’

But experts think slight change in wording is premature

Nov 19,2019
The Finance Ministry’s latest monthly economic assessment replaced the phrase “economic sluggishness” with “restricted growth,” a hint that the economy may be bottoming out.

The ministry claimed that the wording of the green book released last week does not mean a complete turnaround of its perception on the economy, but it is clearly a step back from its previous pessimism.

It marked the first time the term “sluggish” has been replaced in seven months.

Hong Min-seok, head of the Finance Ministry’s economic analysis department, on Friday told reporters that the removal of the word “sluggishness” does not translate to the government changing its view on the current economic status such as the economy starting to rebound or exports and investment improving.

Hong said it indicates the optimism that the economy could improve next year once the global economy and the semiconductor situation turn around.

This aligned with an earlier publication that was released by the Finance Ministry which stated that the global economy and the semiconductor industry will recover next year on the back of expansionary fiscal policies.

The Korea Development Institute and the IMF forecast that next year the Korean economy would grow between 2.2 and 2.3 percent, better than this year’s 2 and 2.1 percent. This optimistic outlook was reflected in the government wording.

However, experts in the private sector are cautious, as even if the economy moves upward as the government projects, it could be temporary.

Korea’s exports, which are a key growth engine, are expected to have declined for 12 consecutive months including this month. Meanwhile, some experts say, the only actual cause behind the positive economic indicators is increased government spending.

“It seems that there are arguments that the economy has reached its bottom and is likely to move upward considering that statistically in the two-year economic cycle, this is the time in which the economy starts to recover after hitting the bottom,” said Yi In-sil, a Sogang University economics professor.

“However, there are no clear indicators showing the real economy improving while uncertainties home and aboard remain large.”

She said that even if the economy next year shows a slight improvement compared to this year, it would largely be because this year has been much worse.

Other experts say it is most likely that the economy for the time being will remain flat rather than moving upwards as the country deals with the productive population shrinking, potential growth shrinking and possibly deflation.

Some even suggest that Korea could be entering a phase of low growth and low inflation, similar to Japan.

“The government is artificially holding the economy from falling further by increasing spending, and this trend is likely to continue,” said Yoo Gyeong-oon, a professor at the Korea University of Technology and Education.

“[But] considering that there are [legitimate] concerns that economic stagnation could last longer, it would be too hasty to hint that the economy is at its bottom [and improving].”

There are those that argue that the government has taken out the word “sluggishness” from its recent green book largely because of pressure from the Blue House.

President Moon Jae-in the day before the green book was released told Finance Minister Hong Nam-ki to show “leadership” on economic issues.

The ministry actually placed a sticker over the word “sluggishness” when mentioning the semiconductor industry in the final version, suggesting that the change was made at the last minute.

BY SOHN HAE-YONG [lee.hojeong@joongang.co.kr]


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