Face economic reality

A depression in the real economy is coming toward us even faster than we had feared. The International Monetary Fund in October predicted that Korea’s economy would grow 3.5 percent next year, but barely a month later, the forecast was dropped to 2 percent.

The Organization for Economic Cooperation and Development initially forecast Korea’s economic growth at 5 percent, but this week lowered its projection to 2.7 percent.

It is likely that the Bank of Korea will also make a conservative forecast for 2009 growth, predicting a number in the 2 percent range.

A growth rate of 2 percent next year means that on-quarter growth compared to this year’s last quarter or next year’s first will drop into negative territory.

This means the economy is rapidly and drastically slowing down. Negative growth means the economy shrinks.

When gross domestic product, the sum of the nation’s domestic economic activities, shrinks from the previous quarter, incomes go down and jobs disappear.

We may be headed for a vicious cycle of reduced incomes and jobs, leading to frozen consumption and investment, in turn leading to shrunken production and further income and job reductions.

Companies are already feeling the subzero business climate. The Bank of Korea has announced the manufacturing industry’s Business Sentiment Index for November, and the figure dropped 13 points from the previous month to 54.

This is the lowest since the third quarter of 1998 in the aftermath of the last financial crisis. At the time, the BSI was 47.

The Korea Chamber of Commerce and Industry announced the business climate forecast for the first quarter of next year, and the situation seems even worse. The chamber said the BSI for the first quarter of next year would be 55, a 24-point plunge from the 79 of the previous quarter.

That is considerably lower than the BSI (61) of the third quarter of 1998. This means the business community feels even worse about the economic climate than they did during the late ’90s financial crisis.

There is no apparent way to avoid the fast approaching depression. Companies, households and the government must have strong determination to fight against it. They must do their best to weaken its impact and shorten its duration.

The outlook is bleak, but the government still argues that the economy will grow about 4 percent next year. Such groundless optimism will do nothing to help us escape the approaching crisis. Such a forecast will only weaken the government’s ability to fight against worsening economic conditions.

It is time to face cold reality. It is time to prepare for the worst.