Enough stop-gaps for economyAll the talk of economic justice and increasing welfare benefits sounds increasingly like hot air as the domestic economy continues to lose steam. It may not even grow 3 percent this year if it keeps limping along at this anemic pace. Signs in Europe and China are also a cause for concern. Spain, one of the largest economies in the euro zone, is facing a liquidity crisis, with borrowing rates hovering above the affordable threshold. Yields on Spain’s 10-year government debt rose to 7.58 percent, raising fears that the country won’t be able to raise funds from overseas and will have to seek a bailout.
Moody’s Investors Service cut the outlook for Germany, considered by many as Europe’s savior, to “negative” from “stable” despite the country’s stellar AAA rating, a move that usually forewarns a downgrade in a country’s sovereign credit rating. Meanwhile, China, Korea’s largest export market, is also struggling to meet its annual growth target as its economy slows.
Authorities are confounded by the twin sinking of both major and emerging markets. Apart from the electronics sector, fueled by a smartphone boom, the rest of country’s five mainstay export items - shipping, petrochemicals, steel and machinery - all fell. Moreover, the consumer sentiment index dropped for the second consecutive month, which implies domestic consumption cannot make up for sluggish exports. Companies are also canceling some of their investment plans amid bleak economic prospects, bringing the growth estimate for capital investment down from 6.2 percent to 5.8 percent.
Bank of Korea Governor Kim Choong-soo told the National Assembly that he sees downside risks to the central bank’s growth estimate of 3 percent for this year. Finance minister Bahk Jae-wan, who has been championing a balanced budget, now says a supplementary budget may be unavoidable. Today’s unrest comes mostly from external factors, and it could be headed for a prolonged slowdown.
The recent monetary and fiscal moves by local authorities - cutting the benchmark interest rate and accelerating the deployment of the second-half budget - are all stop-gap measures to stimulate corporate and consumer sentiment. The real challenge starts from now. Authorities should implement more aggressive budgetary and monetary actions to stimulate the economy. The government must also keep its promise to do its best until its last day in office.