The economic equation

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The economic equation

The Korea Development Bank has issued a forecast estimating that the country’s economy will expand by 5.5 percent next year, surpassing not only the government’s own forecast of 4 percent but also the most optimistic estimates by think tanks here and abroad.

The economic growth rate for this year was also upgraded to 0.2 percent, which is welcoming news as Korea was hit hard by the global economic downturn.

It would be good news if Korea can hit such a high growth rate next year and keep inflation under check.

But as we all know, the economy does not necessarily move in line with forecasts.

Too much optimism can lead to premature celebrations, while on the contrary too much pessimism could stifle any little sign of a recovery in the market. That is why neither too much pessimism nor too much optimism at this time is warranted.

The KDI made the rosy prediction on the assumption that exports and domestic demand would show steady growth. It also stressed that investment in particular would show remarkable growth, which would mark a big turnaround from the past, when local companies wouldn’t budge despite the government’s repeated plea to increase corporate investments.

We can’t imagine a better scenario than the one the KDI painted.

But the issue in Korea is that economic conditions here and abroad still remain as big question marks, while the prospect of a quick recovery in the United States, the world’s largest consumer, remains murky at best.

If the global economic recovery, including one in the U.S., remains in the doldrums, chances are that the KDI’s forecast will turn out to be wishful thinking. Now we are faced with the daunting task of implementing strategies that are both quick and discreet, which may sound self-contradictory but are in fact what’s needed.

We need to kick-start our exit strategies sooner than previously planned if the recovery accelerates faster than expected, while respecting the fact that enacting them too soon could strike a devastating blow to the economy.

What we need now is well-timed and highly delicate coordination among regulators and policy makers in the macroeconomy and microeconomy.
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