The trap of a structural downturn

Korea Inc. is sinking faster than expected. The Bank of Korea has announced that the economy in the third quarter grew a mere 1.6 percent on year. The sluggish growth made it just the fourth time in our history when the quarterly growth rate has fallen below 2 percent.

The previous slowdowns were mostly temporary periods caused by external factors like the oil shock in the 1970s, the currency crisis in 1998 and the global financial meltdown on Wall Street in 2008. The economy this year, however, is steadily slumping without major external shockwaves, revealing signs of a structural downturn now and in the future.

The pace of economic deterioration has reached a worrisome level. The central bank, which had cut this year’s growth estimate to 2.4 percent, estimated the economy will grow by at least 1.8 percent in the July-September period. But the economy could likely fall way short of the conservative target due to the lower-than-expected figures for the third quarter.

At the current pace, we can hardly expect growth of above 3 percent next year as well. And there are few hopeful signs at home or abroad that the economy will pick up speed any time soon. One of the major reasons behind the poor third quarter gross domestic product numbers was a sharp contraction in capital investment. Admittedly, however, sluggish corporate investment dampens prospects for the economy as well as debilitates the engine for growth in the long run.

We have repeatedly warned of an entrenched slowdown and demanded that our government come up with substantial policies to revitalize our growth engine. But the lame-duck administration appears to have lost its will and capacity to reverse the economic current, and the three major presidential candidates whom aspire to lead the government for the next five years still bury themselves in policies that hit more breaks on the economy thanks to populist pitches for expansive welfare programs instead of offering an impetus for a recovery. The political risk of a potential power transition also adds uncertainty to the fragile economy that could end up losing vitality for self-recovery down the road.

Politicians must come to grips with reality and realize that the once resilient Korean economy is heading toward a deep abyss. They must articulate a clear and workable vision to save the economy. Otherwise, the incoming government may spend most of its term mired in the slump of economic depression.