[EDITORIALS]Economic crisis is undeniableThe domestic economy is now in a crisis. First-quarter growth decelerated to below 3 percent, and second-quarter growth won’t be much better. Things are so bad that Finance Minister Han Duck-soo, who is the chief economic policy maker, suggested that the government had given up on its goal of 5-percent economic growth for this year.
As exports, which are the backbone of the Korean economy, slowed down, the nation’s current account posted a deficit. Companies’ investment in facilities and household consumption haven’t yet improved. The Leading Economic Indicator, which predicts the business cycles in the future, has curved downward.
These various economic indicators all point to a crisis. If such conditions last, the domestic economy might fall into a long-term stagnation.
Mr. Han even mentioned the possibility of a long-term recession similar to Japan’s: The government has already pumped enough money into the domestic economy, the key interest rate is at a record low so it is difficult to bring it down further, and yet the economy continues to deteriorate. These are symptoms of a Japanese-style stagnation.
The economy needs to grow at 5 percent annually to provide jobs to young people entering the job market, some 500,000 every year. Now that it seems difficult to achieve that economic growth rate, the youth unemployment will certainly rise. The possibility of a long-term stagnation is casting dark shadows of unemployment and bankruptcy on those who currently have jobs or are self-employed.
The recession will start a chain reaction in the economy. If the economic downturn persists, companies will accelerate restructuring in order to survive, and then workers’ jobs will become unstable. Companies will be reluctant to make new investments and consumers will tighten their purse strings. All retailers, from department stores to mom-and-pop shops, will see sales decline and will have to slash prices. The unluckier ones will go bankrupt.
In the first quarter, the United States grew by 3.5 percent and Japan by 5.3 percent at annualized rates. In Korea, the economy rose only 1.6 percent at an annualized rate in the first quarter over the fourth quarter. Korea should grow at double the pace of the United States and Japan to catch up with them in per-capita national income, but instead, the gap in per-capita national income between Korea and the two countries will continue to widen.
The government’s insensitivity to the crisis is making things worse. Early this year, government officials argued that the domestic economy was showing signs of a recovery. President Roh Moo-hyun declared a few months ago, “The economy has completely recovered in all the aspects.” The prime and deputy prime ministers recently said that the economy would recover in earnest in the second half. Now that only one month is left in the first half, all of a sudden the finance minister starts talking about economic difficulties.
The economy has been struggling while the government has wasted time trying to convince the public that talk of a crisis was premature and that distribution was more important than growth. The construction industry froze while the government was focusing on suppressing real estate prices in southern Seoul, and corporate investment faltered while the government promoted its vision of balanced national development.
Now we have no time to ask who is responsible for the economic crisis. The government needs to recognize there is a crisis and take countermeasures.