[FORUM]Slow year will precede a rebound

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[FORUM]Slow year will precede a rebound

In ancient Greece, a king was in agony because of threats from a neighboring kingdom. He decided to consult a fortune-teller about whether to go to war or seek a compromise. He received a divination from a female priest at the Temple of Apollo, who said, "A war would produce a winner." The king immediately went to war, but he was utterly defeated. Severely wounded, he demanded an explanation from the priestess of the erroneous prophecy, but she answered, "I told you a war would produce a winner, not who the winner would be."

As the presidential election nears, astrologers are harassed with requests to pick the winner. An astute astrologer would give as vague an answer as the Greek priestess. The astrologer would talk about objects in the heavens like Taurus and Saturn rather than give a name, and add an obscure divinatory sign, letting a customer figure out its meaning.

Analysts who want to predict the movement of the economy next year are in a much more difficult position than fortune- tellers and shamans; they are not allowed to give an ambiguous forecast. They need to give exact figures on economic growth or inflation. Additionally, since their forecasts are reported in the media and stay on the public record, people can evaluate the forecasts and judge whether they were right or not. The International Monetary Fund has been criticized for its incorrect predictions about the Korean economy before and after the 1997-1998 financial crisis and other recent predictions about the American economy.

But that does not daunt economists, who have been busy predicting the course of the Korean economy next year. The most optimistic estimate so far is for 6 percent growth, similar to this year's growth, but as time goes by, more pessimistic predictions are appearing. Most domestic research institutions, including the Korea Develop-ment Institute, see 5 percent growth. Goldman Sachs & Co. gave a 4 percent figure.

Pessimists about economic growth are gaining ground because of increasing economic uncertainty -- external factors like a war against Iraq, fears of a double-dip recession in the United States and concern about the prospects for the Chinese economy. Internally, the presidential election in December and unsettled North-South Korea relations are also factors.

When uncertainty rises, economic activity tends to contract. Consumption has led this year's economic growth, but it may already be slowing. Paradoxically, government steps to curtail the growing volume of household loans and control real estate speculation could result in driving consumption down. Although the forecasts may not be entirely accurate, it would probably be best for us to expect a slow economy next year and make plans for dealing with the problems that may cause.

Of course, there are other factors that may help dispel the gloom. Exports have recovered recently, and this could be a breakthrough. If the worst scenario -- involving a war, a rapid rise in crude oil prices and a global economic depression -- does not occur, we may be able to keep exports growing with hard work. Cooperation between managements and labor unions and efforts to increase competitiveness and make inroads in export markets would boost exports and sustain the domestic economy just as domestic consumption supported the economy in the past. If the information technology sector recovers, as some professionals anticipate, our economy would be at full strength.

As has happened in the past, if we get through next year it is possible that consumption will steadily recover in the following year. When a new administration comes into power, it brings new policies that often result in conflict and disputes and create tension among consumers. Then a new year begins, society becomes stabilized and uncertainties are resolved, leading to more consumption. During the second year of the terms of Roh Tae-woo, Kim Young-sam and Kim Dae-jung, consumption grew between 8 and 11 percent.

* The writer is director of the JoongAng Ilbo Economic Research Institute.

by Ro Sung-tae

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