[EDITORIALS]Heading off a recession

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[EDITORIALS]Heading off a recession

Business is expected to slow down in the second half of this year, according to the Korea Development Institute. In its report on this year’s economic prospects, the institute raised the forecast for the growth rate from 5 percent to 5.3 percent. However, a closer look shows that the institute sees the GDP growth rate falling from 6.2 percent in the first quarter to 5.8 percent in the second, to 5.1 percent in the third and finally 4.4 percent in the fourth quarter. The declining growth rate means that the economic boom at the beginning of the year will lose steam, and that we could fall back into a recession.
Despite a momentary increase in consumer spending earlier this year, a complete recovery is still a long way off. The problem is that there are no policies to spur a business recovery. Interest rates can only go up from here on, our safeguards against the exchange rate have reached their limits and government spending is limited. High oil prices and the rising value of the Korean won put our exports at a great disadvantage. The only thing we have to rely on is investment. The institute, too, emphasizes investment as the key to the economic recovery this year. But by raising the expected equipment investment rate to 8.4 percent this year, the institute implies doubts about its own forecast.
Even if macroeconomic policies can’t do the job, we can still encourage business investment through microeconomic measures such as deregulation. Fortunately, the Fair Trade Commission has decided to lift by 2008 the ban on companies in large conglomerates from purchasing stakes in related companies in excess of 25 percent of their net worth. The sooner the regulation is abolished, the better. Not only would this be a step forward in the government’s deregulation drive, it would also facilitate an economic recovery.
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