[EDITORIALS]Don’t boast about the economyThe government has recently begun to say the economy is showing signs of improvement. Lee Hun-jai, deputy prime minister and minister of finance and economy, said, “We must take good care of a live coal to start a fire, and let it grow strong.”
The government has pointed to economic indices, made public recently, that indicate domestic consumption is increasing. Demand for cash has grown as the Lunar New Year holiday season approaches; the economic index that indicates market expectations of consumer confidence went up last month for the first time in four months, and credit card sales have started to rise.
It is good news that the frozen domestic economy has started to show signs of a thaw, starting with consumption, because it can advance the timing of an overall recovery.
Despite optimistic government forecasts, however, excessive expectations for an economic recovery should be avoided.
Most economic forecasters remain pessimistic about an early rebound in domestic consumption. Jung Ku-hyun, president of the Samsung Economic Research Institute, predicted, “Full-fledged economic recovery will only be possible in the first half of next year.”
The government think tank, the Korea Development Institute, stated simply that “Korea’s domestic economy is still on the decline.”
The market activity people feel in their daily lives is still very cold. Although cash demands have increased because the holidays are close at hand, it does not lead to sales of goods.
Investment by private sector businesses is the key to the revival of domestic consumption.
But to the contrary, investment in facilities in December decreased 2 percent in comparison with the same period in 2003.
Despite the optimistic economic forecast made by the government, it was nothing but a purposeful emphasis on some of the selective economic indices.
Of course, we can understand the government’s effort to rekindle the fire of economic activities.
Also, we cannot ignore the psychological effect of an optimistic forecast on the actual economy.
But excessive optimism based on uncertain economic indicators will weigh down any recovery in the long term.
In particular, the government should refrain from making noise about a recovery led by growth of consumption by exaggerating the related economic indices.
Actual recovery of private sector consumption can be expected only when the amount of household debt is lowered and the rate of employment start to grow. Otherwise, increased consumption could only lead to increased household debt and insolvencies.
Instead of reacting sensitively to a few economic indices, the government must remember that the shortcut to economic recovery lies in eliminating uncertainties in the economy and boosting private sector investment.