Renew focus on the economy

Dark clouds are looming over the economy as the second half of the year approaches. European debt woes and anxiety over escalating tension on the Korean Peninsula in the wake of the Cheonan disaster sent shock waves rippling through the fragile economy.

Yet politicians became engulfed in local election battles and the government shelved sensitive reform projects to await the results. The abandoned economy only slipped further into the abyss.

From a statistical perspective, the economy appears to be headed down a smooth path toward a recovery on the back of stable growth rates and trade. But these numbers do not yet reflect recent external factors. The business survey index, which measures economic sentiment going forward, recently moved downward for the fourth consecutive month. Equities and the value of the local currency have been losing ground fast.

The economic recovery - which has still not reached individual households - has turned onto a bumpy road, and there are few signs that the path will even out in the near term.

With the elections now over, at least one major uncertainty has been cleared up. But the economic outlook remains foggy with a number of other stumbling blocks in the way. It is time for the government and politicians to regain their composure after the overheated elections and join forces to tend to the economy.

Authorities must now aim to keep macroeconomic policies stable to help the nation build up resilience to external factors and risks.

They must concentrate on smoothing the financial and currency markets swept up in the panic over the possible impact of the European debt crisis and the conflict between the two Koreas over the Cheonan tragedy.

If authorities veer away from the current economic support framework, anxiety among companies and individual households will only mount.

They should also brace and prepare for the economy’s unexpected slowdown in the second half. The economy fared better than expected in the first six months of the year largely because it was coming off extremely poor numbers in the same period a year earlier.

But the growth rate will likely sag in the latter half of 2010 in the face of a prolonged recession in world markets.

Still, the government should push ahead with its planned reform projects. It has a pile of sensitive reform tasks touching on various industries as well as initiatives related to the privatization of state banks and labor relations. It must refocus on policies to foster a sustained economic recovery.