[EDITORIALS]Good news - and caution

The Korean economy grew by 3 percent last year. That is far short of the 9.3 percent growth in 2000, but it is an impressive feat considering the threat of recession after Sept. 11.

But there are some problems in the fine print. There was a change in the balance between domestic demand and exports that may pose a threat to the economy. The Bank of Korea attributed 77 percent of last year's growth to domestic demand, with the remaining 23 percent credited to exports. This is the first time since the 1970s, when exports began to drive economic development, that exports' contribution to growth fell to that low a level.

And all domestic demand came from private consumption; business investment and capital spending were flat. Private consumption contributed 99.9 percent of domestic demand last year, more than four times the ratio in 2000.

The results are still a relief; recall that even growth in domestic consumption flickered and went out last fall. It is a natural consequence of development that as living standards rise, so does the proportion of private consumption in domestic demand. The problem is that such consumption is rising too quickly. Total domestic demand was dominated by consumer spending and housing construction last year.

Because the Korean economy is relatively small and relies heavily on imported raw materials, the imbalance between domestic demand and exports can lead to inflation, a worsening balance of payments and unsustainable bubbles.

We already have signs of such effects in the housing market, the stock market and high-end consumer goods. Private thinktanks have warned about an overheated economy in the third quarter.

We must be cautious to avoid the kind of situation that led to the 1997 financial crisis. We need to note the U.S. Federal Reserve's shift from stimulus to a neutral policy.

Seoul has shifted to a more neutral fiscal policy, and it is also time that economic management includes a review of monetary policy to ensure that we do not miss out on the chance to keep the economy in balance.