It’s time to worry

The Bank of Korea released a gloomy economic forecast of 2 percent growth for next year. The central bank forecast that the economic slowdown will continue in the first half of next year, following negative growth in the fourth quarter of this year. If the growth rate is 2 percent, only 70,000 people will find new jobs, much lower than this year’s 140,000.

The head of the BOK survey department said that if the world economy sees negative growth next year, our economic growth rate will go down even more, implying that there is a possibility that next year’s forecast could be revised downward. Thanks to the U.S. Senate’s rejection of a Big Three bailout, another economic tsunami is about to cross the Pacific Ocean. We should be prepared because the worst is yet to come.

The BOK drastically lowered the benchmark interest rate Thursday out of a sense of urgency. As exports in the world shrink, we cannot realistically expect to overcome the crisis by expanding exports.

Households are feeling the pressure of 676 trillion won ($482 billion) in debt and companies show no sign of increasing investments in equipment. The only choice is for the government to step up. A bold financial investment is the only solution to overcoming the economic slowdown.

Next year’s national budget of 282 trillion won was set with an assumption of 4 percent growth. If the growth rate nose-dives to 2 percent, a supplementary budget of 20 trillion to 30 trillion won must be immediately added. This move is vital to maintaining minimum possible growth and providing a social safety net. When it is clear that a crisis is coming, the government should not hesitate to expand spending. An unprecedented economic crisis must be responded to with unprecedented measures.

Our government’s debt is half the average for Organization for Economic Cooperation and Development members. It is good that our government has a reserve to expand spending, and it must spend to protect those who were laid off during restructuring and to secure new growth engines for our future.

The BOK should examine an additional interest rate cut and an expanded supply of liquidity as long as economic capacity permits.

Now is not the time to worry about a liquidity trap or creating a deficit. We should do what was previously regarded as unthinkable and get new perspectives to find a way out from the crisis. One should feel a sense of urgency after the BOK’s ill-boding outlook.