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[EDITORIALS]Forecasts may be too rosy

Published: 14 Oct. 2005, 22:01

The Korea Development Institute has made an optimistic economic forecast the first for a long time. The economic think-tank diagnosed that the economy could grow at a higher rate than the growth potential, which is set at 5 percent, next year, thanks to a faster recovery of consumption than expected. A few days ago, the Bank of Korea also said that economic recovery was becoming clearer when the bank raised its call rate. If things go as they predict, the Korean economy will start to recover from this year’s end and will become active next year. The institute has even advised the government to prepare belt-tightening measures to prevent overheating.
But there is a big gap between such optimistic predictions and the market economy people feel. Of course, it takes time to send the warmth of recovery to all corners of the economy. Even if we take this into account, it is difficult to accept the rosy prediction readily as the market is still frozen. First of all, we wonder whether the consumer indices the institute quotes as the grounds for recovery are effective enough indicators of a revived economy. The think tank said consumer psychology had recovered because households were being freed from credit-card debts. But except for the sales increase in new cars and some electric home appliances, there is no evidence that consumer sentiment has revived. Above all, it is hard to expect that households will increase spending while their incomes have not increased.
The prediction that investment will grow in a big way next year is not reliable either. Various business regulations that obstruct investments are still rampant, and it is unlikely that the construction sector, which shrunk after strong measures against speculation were enacted, will flourish next year. How lucky it would be if the economy recovers as is predicted. But the predictions of both the institute and the government since the current administration came into power have gone wrong repeatedly. It is difficult, therefore, to put weight on the institute’s optimistic forecast. We worry that the political community or the government will suggest, based on the optimistic economic forecast, “Let’s concentrate on distribution of wealth, since the economy has recovered and returned to the growth path.”
Instead of being swayed by a few indices, we need to ease regulations and remove uncertainties.