Dealing with the slowdownThe government has again introduced a series of measures to stimulate the economy, less than three months since similar efforts in June. It added 4.6 trillion won ($4.1 billion) to the 8.5 trillion won package it promised to deliver in the second half after realizing the economy was doing worse than expected. But experts believe the relief measures will do little to help.
First of all, the government is not raising any new funds to pump up the economy but rather advancing what has been set aside for next year. It offered to ease payroll tax withholding requirements to encourage spending. But this is simply a word game since the taxes are often refunded anyway. And the move to lower sales taxes on purchases of cars and electronics might give a momentary boost until the end of the year, but it won’t solve the broader issues with consumer confidence.
It is especially worrisome that the current slowdown may not be easily reversed. The economy is expected to underperform this year’s growth target of 3.3 percent, and some investment banks predict the economy will to between 0 percent and 1 percent in the second half. The average forecast for Korea’s growth this year stood 2.9 percent in July but fell to 2.6 percent in the following month. If the protracted slowdown is not cyclical, the economy’s structural weaknesses may be to be blame along with global stagnation. If so, short-term stimuli like rate cuts will not be adequate to solve our problems.
Moreover, careful assessment of economic problems is difficult in the presidential election season. Presidential candidates customize campaign platforms and economic policies to accommodate popular demands on welfare benefit increases and income equality. But instead of relying on easy rhetoric, candidates must look at the reality of a structurally slow-moving economy with cool heads and come up with viable remedies accordingly. If we simply ignore the fundamental problems in favor of political rhetoric and financial games, the economy has no future.