[EDITORIALS]Pie-in-the-sky economics

The government’s optimism that Korea’s economy will improve next year has been dealt a serious blow. The Korea Development Institute pointed out that an unexpectedly slow recovery in facility investments might undercut the nation’s growth potential next year. The institute also lowered its estimated growth rate for corporate capital expenditures and for consumer spending, reflecting its concern that the path to an economic recovery would be a difficult one. A survey by Korea Development Bank of 3,600 companies also found that the growth rate for corporate capital spending would be 5 percent, about half of what it was this year. These findings suggest that the economy will have to rely heavily on exports, while the domestic picture remains dark.
The nation’s chief executive officers, who know the ins and outs of the national economy, have even gloomier forecasts for next year. According to a recent survey by the Korea Employers Federation, most of the heads of the 211 canvassed companies expect economic growth to be around 3 to 4 percent, lower than the government’s figure of 5 percent. These chief executives were also found to feel that the recovery process has either stalled or is just starting, a position in contrast to the government’s claim that the revival is in full swing.
The collective fourth-quarter performance by the 50 biggest listed companies is expected to fall from the third quarter. Situations like these contribute to sluggish growth in corporate capital spending, because the companies cannot afford to simply increase their expenditures without the assurance that the economy will improve.
The federation’s survey showed that most chief executives will either maintain their current capital spending level or slightly increase it next year. This sentiment is in line with the Korea Development Institute’s worry that there will be a slow recovery in facility investment.
The government that argues as long as the economic growth rate reaches 5 percent, all economy-related problems will be solved. Yet people still have difficulty finding jobs and many are having more trouble trying to make ends meet.
At this juncture, the government’s use of the phrase “5 percent growth rate” rings hollow because it will not help the economy rebound. Given our recent struggles, even 5 percent growth will not be sufficient. The overly optimistic forecast that does not take into account the real economic situation will make it difficult to get to the 5 percent mark.