[EDITORIALS]The growth rate slows

The economic growth rate fell to 2.7 percent in the first quarter of this year. This is the lowest quarterly rate in a year and a half ―since the third quarter of 2003. Last year’s economic performance was bad, but not as bad as this.
The Bank of Korea has blamed a drastic decrease in cigarette production, caused by cigarette hoarding at the end of last year because of rumors of a price increase. But cigarette hoarding is not a reasonable explanation for this slowdown.
The reason the growth rate crashed in the first quarter was that the export growth supporting the economy slowed, and domestic consumption did not revive. Considering the effect of the appreciation of the won against the dollar, exports had not been expected to grow as much as they did last year. Again, the problem is stagnant domestic consumption. Consumption depends on investment and consumer spending. Though there are signs that business investment is going up, it is not enough to lead growth. And households are still tightening their belts. If this trend persists, there will be a very slim chance of economic recovery in the second quarter.
A government official has said, “There is no plan to revise this year’s goal of 5-percent economic growth.” He added, “The government will boost the economy by mobilizing all available measures.” But the government does not have many tools at hand for that. Interest rates are as low as they can go, the budget is stretched almost to its limit and the construction sector, which has the strongest effect on a recovery, is frozen by the president’s repeated assurances that “the government will never try to boost the economy by deregulating the real estate market.”
To achieve 5-percent growth this year, the economy will have to expand at 7 to 8 percent in the second half to counterbalance the slowdown in the first. The government and the central bank keep repeating that the economy will pick up speed in the second half, without offering specific figures. The government said the same thing last year, and the economy only got worse.
Policy is a matter of choices. If the government employs a stimulus policy with one hand and a suppressive one with the other, the economy will never survive. The government must think about where its priorities lie.