Korean economy roars aheadAs unbelievable numbers appear in economic news, prospects for the economy grow brighter. Capital investment in semiconductors in January and February surged as much as 576 percent from the same period a year ago. Exports in the first quarter tripled on-year. Automotive parts sales more than doubled in the first three months from 2008. Factories making liquid-crystal displays and petrochemical products can hardly keep up with the surge in overseas demand. The local currency’s strengthening against the U.S. dollar poses little concern for exporters as the global economy recovers. Export-driven Korea is quickly picking up speed.
The Bank of Korea recently upgraded its growth forecast for this year to 5.2 percent from 4.6 percent. Other think tanks’ estimates top 5 percent. The state-run Korea Development Institute and foreign banks are expected to raise their outlook to more than 6 percent. Korea Inc. will be returning to pre-crisis growth levels just after hovering around zero growth last year.
Some warn the figures are deceptive, as they are set against the troughs of last year, while those on the other side say that even if the economy expands more than its potential rate of around 4 percent, it won’t overheat because of last year’s low growth. The Korean economy’s recovery is indisputable. Capital investment, which plummeted 9 percent last year, will likely surge 13.4 percent this year, while 240,000 new jobs are expected and domestic consumption could rise by 4 percent. Meanwhile, consumer prices are expected to increase in the mid-2 percent range. The economy, long sustained by government spending, has gained momentum.
But the global economic environment remains murky due to the Greek credit crisis and upward pressure on the Chinese yuan. The won continues to strengthen and international raw materials prices are quickly rising.
It is high time for a calm evaluation on the economy. Authorities should signal an exit if the recovery is solid. They would have to discontinue emergency stimulus measures. If they wait too long, side effects such as inflation and asset bubbles will worsen. The government should also accelerate restructuring of the property project financing system and ailing companies.
Timely and sensible moves from authorities are crucial. They must come up with the best time to apply their exit plans. The economy is beginning to run on its own again, and monetary authorities should shift strategies to buttress sustainable growth. They must act on their rhetoric about green growth and companies must hone non-price competitiveness through technology and quality enhancement. We can then expect to see steady growth in jobs, consumption and an economy safely in a benign cycle.