Wanted: A positive economic cycleWith income reduced by the prolonged economic slowdown, the country’s gross savings rate - the total savings of individuals, corporations and government divided by disposable income - slipped to a 30-year low of 30.41 percent on a nominal basis in the third quarter. The corporate saving rate remained above the average for member countries of the Organization for Economic Cooperation and Development as companies regained their footing after forced restructuring in the wake of the liquidity crisis in the late 1990s.
At the same time, the individual saving rate tumbled to 4.3 percent, bringing down the gross national savings. Individuals hardly have anything left to save due to increasing debt burdens and the falling value of disposable assets. Naturally, they cannot afford to spend, which explains stubbornly sluggish domestic demand. Disparity in both individual and corporate growth and income has reached dangerous levels.
The low savings rate is an ominous sign for Korea’s economy. When savings hit the bottom, investment is sluggish and that eats away at the economy’s growth potential. Companies have already turned lukewarm and discreet in investment. Capital investment has contracted in the second half of this year compared to the same period last year, and the economy barely moved from the second to third quarters, growing a mere 0.1 percent.
Prospects for next year also are bleak. A JoongAng Ilbo survey of the 30 largest business groups found that seven companies plan to cut back on investment next year and 21 say they are unlikely to put money into new businesses. Corporate sentiment has frozen up.
There is no silver bullet to spur individual savings and corporate investment in the short term. But it is imperative to calm corporate jitters. The government and political sector should shift from lopsided anti-chaebol policy to a pro-growth course that encourages corporate investment.
Sentiment is everything in the economy. To restore savings, creating jobs is the key. Once the election is over, fiscal and monetary authorities should join forces to present a combination of policy actions to stimulate the economy. The incoming government should do all it can to increase jobs, as the two top presidential candidates have pledged. We need to reactivate a positive cycle, where increased corporate investment and hiring eventually lead to increased income and savings. Otherwise, we won’t be able to put the economy back on track.
with the Korea JoongAng Daily
To write comments, please log in to one of the accounts.
Standards Board Policy (0/250자)