[EDITORIALS]Move Now With Force on EconomyA series of recent data paints a depressing picture, indicating the economy may be in for a steady deceleration. We received news just a few days ago of a 2.7 percent decline in industrial production, the first drop in 32 months. On Wednesday, government figures showed the largest ever one-month decline in exports. There are also reports that major corporations have no plans to increase capital investment next year, fueling concern that slowing capital investment, which began in November, may be headed for further deterioration.
The data present the more serious possibility that both the demand and supply sides may go into a sustained contraction. Falling exports and investment coupled with declining industrial production typically indicate a contracting economy.
In Korea's situation, where nearly half of GDP depends on international trade, falling exports can have a debilitating impact on the economy. Both export and import figures through July have shown dramatic declines compared with the identical period last year. Domestic demand is perhaps the only economic area showing positive signs, and it is the one least likely to contract unless there is a major crisis of the kind we experienced four years ago. If the current conditions continue, the best case scenario will yield a growth rate somewhere in the 3 percent range, 4 percent at the highest. The economy would face the possibility of falling short of the potential growth rate, the noninflationary rate of output growth, which fully utilizes employment and capital resources. Contraction of that kind would inevitably lead to massive unemployment and business failures, which could in turn eat away at the foundation for future growth and push the economy into a lengthy recession.
We want to again warn against excessive pessimism or optimism when it comes to the economy. The optimism aired by the government may have helped prevent a sudden decline in consumer spending, but it has not contributed to a clear-cut improvement in the economy's problems. On the other hand, excessive pessimism can make economic contraction worse, especially when struggling export industries are in the same condition as those in neighboring countries, like Taiwan and Singapore.
What we need to crawl out of the trap of a contracting economy is for industries to share the economic burden voluntarily. As far as exports are concerned, that means exporting businesses, which currently rely heavily on semiconductors, need to diversify in terms of product variety, quality and markets so that they can raise their competitiveness and added-value in response to market demand. Also, an all out drive should be mounted to win plant construction contracts overseas, where there are signs of a fast market recovery.
Also, the government plays a crucial role in formulating macroeconomic policy. Of course the government is faced with limited options in the near term. It cannot go back to the days of pegged exchange rates and directed financial assistance just to stimulate exports. The current low-interest policy, which the government hoped would encourage corporate investment and buoy the stock market, is obviously not working as intended. The government cannot stand by and watch domestic consumption erode. The government must put greater but limited weight on fiscal spending to maintain some strength in domestic consumption and the economy. It cannot afford not to make progress in restructuring the corporate sector to strengthen the fundamentals of the economy.